Finance & Business World

While foreclosure rates are easing in some of the hardest-hit cities, the crisis is beginning to expand into new metro areas.

On Wednesday, RealtyTrac released its list of cities with the biggest foreclosure problems during the third quarter. As expected, towns in California, Florida and Nevada dominated the top 10, with Las Vegas taking the top spot with a rate of 1 in 20 homes. That’s a 53% increase over the third quarter 2008.

But there was a bright spot: Half of the cities in the top 10 showed year-over-year declines in their foreclosure rates, and 60% showed improvement compared with the second quarter.

For example, second place Merced, Calif., saw foreclosures fall by 11% from last year and 13% from last quarter, to 1 out of every 27 homes. And Stockton, Calif., slipped to No. 4 from No. 2 last quarter. The city, which is 80 miles east of San Francisco, had ranked highest for all of 2008.

"We’re not sure if that will be a one-time thing or a true continued trend, but it’s one of the first positive signs we’ve seen," said Rick Sharga, a senior vice president at RealtyTrac.

New hotspots. But if Las Vegas was the big loser, its neighbor, Reno, Nev., was hot on its heels. The No. 9 city posted an 80% gain in foreclosures — 1 in 37 homes — compared to the third quarter of last year. And it’s just one of several smaller metro areas that are creeping their way up RealtyTrac’s foreclosure list payday advance loan.

"Foreclosure activity is spreading from primary cities into secondary areas," said Sharga. "These aren’t your LAs and Phoenixes — it’s moving into outlying regions."

Boise, Idaho, cracked the top 20 for the first time as foreclosures jumped 141% — the largest increase from 2008. Similarly, Provo, Utah, rose 120%.

The pair of cities "are the first two cases where areas with very high unemployment are breaking into the top spots," Sharga said. "That will continue over the next few months."

Outlook. "The fact is, we’re still seeing record levels of foreclosure activity," said Sharga, who doesn’t expect rates will peak until 2010 because many option-ARMs will reset over the next several months.

Still, the housing market seems to be adjusting, because home prices are stabilizing — albeit at a lower level, Sharga said.

A record number of properties "are coming down the foreclosure pipeline" as well, Sharga said, and they will be trickling into the housing market over the next four years.

"We expect a longer, less robust recovery for the housing market," Sharga said. "We won’t know what’s what until everything gets worked out of the system." 

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Danish Central Bank Governor Nils Bernstein said Denmark would have been hurt less by the financial crisis had it adopted the euro, calling the common European currency an “insurance policy” for the economy.

“The crisis has shown us this is not just a political problem,” Bernstein, 66, said in an interview in Copenhagen on Sept. 28. “The crisis has shown that we can manage economically outside the euro, but it has also demonstrated that there are big advantages during a crisis to be inside and much more protected against turmoil and to have access to the euro system’s facilities.”

Denmark pegged the krone to the euro in 1999, obliging the central bank to use policy to steer the currency. Nationalbanken raised the benchmark rate to 5.5 percent in October as policy makers defended the krone from a sell-off while the European Central Bank cut its main rate. That led to higher mortgage payments for Danish holders of adjustable-rate loans and increased the euro’s appeal among voters.

“The big interest rate differential we had last year wouldn’t have been necessary had we been inside the euro zone,” Bernstein said. “We were under pressure.”

Denmark would have had earlier access to dollars had it been a member of the common European currency, he said. In September last year, Nationalbanken was one of several central banks outside the euro zone to receive swap lines with the U.S. Federal Reserve.

‘Safe Harbor’

“We had to make an agreement with the Fed and a euro agreement with the ECB to help us through our problems, which demonstrates that in a storm it’s better to be in a safe harbor than alone at sea,” Bernstein said.

Momentum in favor of switching to the common currency has ebbed as the crisis abated and the Danish central bank cut its lending rate to a record low of 1.25 percent on Sept. 24. After rising to a three-year high of 53.4 percent in November, Danish voter support for the euro fell to 48.9 percent of respondents, a poll commissioned by Danske Bank A/S showed this month.

The government will probably break its pledge to hold a referendum on joining the euro this electoral term, which ends in 2011, as polls show dwindling support, government officials, who spoke on condition of anonymity because an official announcement has yet to be made, said this month.

Economists have said if Danes rejected the euro for a third time, after votes in 1992 and 2000, the issue could be sidelined for at least 15 years.

‘Not Very Convincing’

“My expectations are that there won’t be a referendum until we are sure to get a ‘yes’,” Bernstein said. “But the polls fluctuate a lot and are not very convincing. We’ve lost before, and you can’t try too often. It’s the government’s job to convince the voters.”

Former Prime Minister Anders Fogh Rasmussen, who has said not having the euro “damages” Danish interests, handed the premiership to Lars Loekke Rasmussen in April. The former promised a vote by 2011; his successor has gone on the record to say setting a deadline is “impossible,” though he’s stopped short of officially canceling Fogh Rasmussen’s pledge.

Danish support for the euro may recede further as the central bank continues to cut rates. Bernstein signaled the bank may take more steps to ensure market interest rates better reflect the fixed exchange-rate policy, adding the difference between market spreads and benchmark interest rate spreads was something the bank is “tracking continuously, attentively.”

‘No Target’

In an effort to reduce the difference between European and Danish interbank offered rates, the central bank has widened the spread between its own lending and deposit rates, reducing the return banks can get if they use central bank facilities.

“While there is no target for the spread between the lending and deposit rates, we can see signs that the difference between the two is starting to work according to plan,” Bernstein said. “The result is that financial institutions are making less use of the central bank’s facilities.”

The bank on Sept. 28 lowered the rate it pays on certificates of deposit to 1 percent from 1.15 percent, widening the spread between its lending and deposit rates to 25 basis points.

The difference between the three-month European interbank offered rate and the equivalent Danish rate dropped to 0.874 points today. That compares with 1.0943 points on June 30 and 2.036 points on Jan. 2.

More Cuts

“It’s quite likely that we’ll see more rate cuts, both with the lending rate and also the deposit rate,” Jacob Graven, chief economist at Sydbank A/S, Denmark’s third-biggest bank, said today. The bank probably hasn’t finished cutting rates, he said. He expects the spread to the ECB key rate to end at around 0.10 to 0.15 point. “There’s still a pretty hefty spread in market rates and that’s making the krone very attractive.”

The difference between the bank’s lending and deposit rates may widen to as much as 50 basis points, Graven said. “But this is untested terrain, so it’s hard to estimate.”

Lower rates may support the property market, after house prices dropped for the last six quarters, to slump a record 11.4 percent in the three months through June. According to Bernstein, prices probably won’t rise next year.

“Maybe in the third or fourth quarter the housing market will trough,” Bernstein said in an interview in Copenhagen on Sept. 28. “It will be flat in 2010, we don’t have big expectations that it will suddenly start to rise.”

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The U.S. economy probably contracted at a faster pace in the second quarter than previously estimated as companies made even bigger cuts in inventories, economists said before a government report today.

Gross domestic product shrank at a 1.5 percent annual rate from April to June compared with the 1 percent drop reported last month, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show claims for unemployment benefits fell for the first time in three weeks.

Companies from Wal-Mart Stores Inc. to Macy’s Inc. cut costs and stockpiles to bolster profits as job losses caused consumers to curb spending. Leaner stocks and government programs to revive demand, including “cash-for-clunkers” and first-time homebuyer credits, are boosting manufacturing and housing, helping the economy emerge from the recession.

“The inventory adjustment is further along than thought, setting the stage for increased production in coming months,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

The Commerce Department’s GDP report is due at 8:30 a.m. in Washington. Survey estimates ranged from declines of 1.8 percent to 0.8 percent. The world’s largest economy shrank at a 6.4 percent pace in the first three months of the year.

A drop would be the fourth in a row, the longest contraction since quarterly records began in 1947. The world’s largest economy has shrunk 3.9 percent since last year’s second quarter, making this the deepest recession since the 1930s.

Fewer Claims

A report from the Labor Department may show applications for first-time jobless benefits last week fell to 565,000 from 576,000, according to the survey median.

Today’s GDP report, the second of three estimates, will include figures on corporate profits not available in the advance figures issued in July.

Consumer spending, which accounts for 70 percent of the economy, probably fell last quarter at a 1.3 percent annual pace, a bigger drop than first estimated, the survey showed.

Reports so far this month have shown government efforts to thaw credit markets and boost spending may be taking hold. Combined sales of new and exiting homes in July reached a 5.67 million annual pace, the highest level since November 2007, the month before the recession began.

Auto Sales

Industry data showed sales of cars and light trucks rose to an 11.2 million annual unit rate in July, the highest since September. General Motors Co. and Chrysler Group LLC, both out of bankruptcy, are among firms set to ramp up production as government efforts lift demand.

The “cash for clunkers” program, which offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, produced almost 700,000 automobile sales before ending on Aug. 24, the Transportation Department said yesterday.

A drop in other purchases last month signals a lack of spending may temper the recovery. Retail sales excluding auto dealers unexpectedly fell in July as Americans cut back on furniture, electronics, building materials, groceries and sporting goods, figures from the Commerce Department showed.

Target Corp., the second-largest U.S. discount retailer, is among companies trimming costs to make up for slower sales. The Minneapolis-based company reported second-quarter profit that fell less than analysts estimated as the company avoided markdowns.

‘Challenging’ Environment

“We continue to conservatively manage our inventories to help us navigate the challenging sales environment,” Kathryn Tesija, Target’s vice president for merchandising, said in an Aug. 18 conference call.

Business investment is another area that may be improving. Orders for goods meant to last several years jumped in July by the most in two years, the Commerce Department said yesterday. The report also showed a measure of shipments used in calculating GDP climbed for a second month.

The economy will expand 2 percent or more in four straight quarters through June, the first such streak in more than four years, according to the median estimate of 53 forecasts in a Bloomberg News survey earlier this month. Economists at Morgan Stanley were among those lifting growth estimates for this quarter after yesterday’s report on durable goods.

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The global economic outlook remains uncertain as growing protectionist sentiment threatens the world’s recovery from its deepest slump since the Great Depression, the Asia-Pacific Economic Cooperation said today.

“The main threats to a revival of trade flows include rising protectionist pressures, and continued delay in concluding the Doha Round” of world trade talks, trade ministers from the 21-member grouping said in a statement today after their meeting in Singapore.

The global slump has prompted policy makers to cut lending rates, boost spending and cut taxes to sustain growth. The International Monetary Fund and the World Bank lowered their forecasts for 2009 global growth in recent weeks, while leaders from advanced nations say the recovery is too fragile to consider reversing more than $2 trillion in stimulus efforts.

Policy responses to the economic crisis should minimize distortions to trade and investment flows, which are critical to ensure growth, the APEC ministers said, adding that the world economy appears to be bottoming out. They pledged to resist growing protectionism and renew efforts to conclude the Doha trade talks in 2010.

“It’s doable, which experience has shown doesn’t automatically mean it’s going to be done,” World Trade Organization Director-General Pascal Lamy said in an interview with Bloomberg Television today. “But we have good political energy and this huge economic crisis is focusing minds on the dangers of protectionism.”

Trade Barriers

APEC members extended their commitment to refrain from raising new barriers to trade and investment by another year until the end of 2010, the ministers said today.

“We will persist with efforts to support growth and facilitate trade and investment flows, keep our markets open and give a new push to concluding the Doha Round,” the trade ministers said. Uncontrolled protectionism could hurt growth severely, they said.

The Geneva-based WTO expects trade in goods to drop 10 percent this year, the most in more than six decades, after forecasting a 9 percent contraction in March. Trade grew 6 percent in 2007.

The collapse in global trade deepened in the first quarter, with exports and imports slumping by more than 10 percent in the Group of Seven nations, the Organization for Economic Cooperation and Development said last week fast cash personal loans.

Contraction Slowing

“We see some slowing down of this deep contraction, especially in Asia, which unsurprisingly will probably be the place in the world economy that will bottom out first and probably more vigorously than average,” Lamy said. “But I remain very cautious as we’re still not out of the woods.”

APEC members, including the U.S., China, Russia and Japan, account for about 44 percent of world trade and 54 percent of global gross domestic product, according to the organization’s Web site.

Ministers agreed that “while populist measures for protectionism were greater during these difficult times, the political resolve to resist them must be even stronger,” according to the statement. “Although the Asia-Pacific region was still relatively open, some trade-restrictive measures had emerged since the beginning of the economic crisis.”

Buy American

The European Union and Canada have led international efforts to get the U.S. Congress to scale back a provision in its $787 billion stimulus bill that said all the steel and manufactured goods bought with that money had to be made in America. Congress later agreed to soften that provision, saying it would be applied in a way that complies with U.S. international obligations.

“We do not believe that the ‘Buy American’ provision as included in our stimulus bill violates that pledge,” U.S. Trade Representative Ron Kirk said in Singapore today. “It expressly states that the ‘Buy American’ provision will be implemented in a manner wholly consistent not only under our obligations to the WTO but our obligations under any of our existing” free trade agreements, he said.

The Doha Round began in 2001 with a focus on dismantling obstacles to trade for poor nations by striking an accord that will cut agriculture subsidies and tariffs on industrial goods. Discussions have been dogged by disagreements over issues including how much the U.S. and the European Union should reduce aid to their farmers and advanced developing countries such as India, China and South Africa should lower tariffs.

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Singapore’s economy will recover slowly from the global recession and the nation’s currency policy stance remains appropriate to support growth, the central bank said today.

“Given that there remain stresses in the global financial system and job markets in the major economies continue to weaken, the domestic economy is likely to witness slow and uneven growth, rather than sharp and decisive recovery,” Monetary Authority of Singapore Managing Director Heng Swee Keat said in Singapore today.

Singapore’s economy is forecast to contract as much as 6 percent this year as demand for goods and services eases amid the island’s deepest recession since independence 44 years ago. The monetary authority in April said it would adjust the trading range for the Singapore dollar, a move economists say effectively devalued the currency.

The government said this week economic conditions “remain weak,” even after a report showed gross domestic product increased an annualized 20.4 percent last quarter from the previous three months, the first growth in a year. The sustainability of the recovery is “uncertain,” Goh Chok Tong, chairman of the central bank, said in its annual report today.

“Notwithstanding the sharp rebound in the economy in the second quarter, growth remains below trend and inflationary pressures continue to be muted,” Heng said. “We assess that the current policy stance remains appropriate to support the economic recovery and ensure medium-term price stability, which in turn underpins confidence in the Singapore dollar health insurance plans.”

October Review

The Monetary Authority of Singapore is next scheduled to review its policy in October.

The central bank raised its forecast for this year’s inflation today, predicting consumer prices may fall 0.5 percent or rise 0.5 percent, compared with an earlier forecast for a decline of as much as 1 percent. It cited recent developments in global commodity prices for the revision.

Singapore will review governance regulations for local banks and major insurers to focus on their risk management practices, Heng said. Local banks are also conducting more detailed stress tests internally and the results will be used in their capital planning, he said.

The monetary authority plans to implement changes on its regulatory framework over the next two years as global standards are raised, he said. The central bank will maintain a “balanced approach” and will avoid “over-swinging the regulatory pendulum,” Heng said.

The central bank also plans to review its deposit insurance regulation to provide “adequate protection to depositors,” Heng said. Singapore will consider raising the coverage limit for deposit insurance, he told reporters.

The central bank plans to “enhance” a standing facility for financial institutions and accept AAA-rated Singapore-dollar debt as collateral for the facility, which allows the institutions to borrow directly from the central bank, he said.

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Banks should reduce their dependence on external credit-rating companies and improve their own risk assessment procedures, the Bank of England said in its Financial Stability Report today.

Relying on rating firms can cause lenders to hold insufficient capital, or cushions against losses, if their “methodologies and models fail to reflect credit risk accurately,” the central bank said. Twenty-one percent of respondents to a Bank of England survey in May cited a lack of confidence in the firms, up from 18 percent in July last year, the report said.

“A reduction in the use of external ratings in regulatory rules would encourage” banks “to improve their own due diligence and risk models,” the Bank of England said in the report pay day loans.

Rating agencies such as New York-based Moody’s Investors Service and Standard & Poor’s were blamed for failing to alert investors about the dangers of riskier assets, including U.S. subprime mortgages, in the deepest financial crisis since the Great Depression. European Union governments and the European Parliament approved a law that imposes oversight of rating companies in April.

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Pakistan may cut interest rates by as much as a third as the government’s fight against the Taliban weakens an already deteriorating economy, analysts said.

The State Bank of Pakistan may lower its policy discount rate by between 400 and 450 basis points from 14 percent by the end of the year to help counter “entrenched recessionary inclinations,” said Asad Farid, an economist at AKD Securities in Karachi. The central bank’s next monetary policy statement is due in late July.

Pakistan’s army is extending its seven-week campaign against Islamic militants in the country’s northwest and is now targeting Taliban commander Baitullah Mehsud in his South Waziristan stronghold. The military campaign is straining the nation’s budget deficit and may force the government to seek further bailouts from foreign donors.

“Government resources are constrained by the ongoing military operations in the North West Frontier Province,” Sayem Ali, an economist at Standard Chartered Plc in Karachi, said in a report yesterday. “The government has had to allocate additional resources to military operations by reducing investment spending, at a high cost to the economy.”

Pakistan’s budget deficit is estimated to widen to 4.9 percent of gross domestic product in the year starting July 1, Junior Economics Minister Hina Rabbani Khar told parliament in Islamabad on June 13. That’s higher than last year’s 4.3 percent and more than the 4.6 percent target set by the International Monetary Fund as part of a $7.6 billion bailout agreed in November 2008.

‘Realistic Cuts’

The fiscal shortfall could end up being as much as 6.4 percent of GDP unless the government makes “realistic cuts in development expenditures,” AKD’s Farid said in a report released after the weekend budget.

Prime Minister Yousuf Raza Gilani’s government is counting on foreign aid to fund almost a third of next year’s budget gap. Pakistan has asked the IMF for a $4 billion stand-by loan as “insurance” if the pledged assistance doesn’t arrive, Shaukat Tarin, finance adviser to the prime minister, said June 14 easy online payday loans.

International donors including the U.S. and Japan pledged $5 billion at a meeting in Tokyo in April to shore up the country’s ailing finances and fight terrorism.

Governor Syed Salim Raza, who took over as head of the central bank at the start of the year, in April cut the benchmark interest rate for the first time since 2002, reducing borrowing costs from 15 percent to help bolster economic growth.

IMF Bailout

Former Governor Shamshad Akhtar raised the central bank’s policy rate by the most in more than a decade on Nov. 12, a move she described as “the toughest decision of my life,” in order to secure a rescue package from the IMF.

Pakistan was forced to apply for a loan from the IMF in late 2008 after its foreign reserves shrunk by 75 percent in a year, its current account deficit widened to a record and inflation jumped to a three-decade high.

South Asia’s second-largest economy is expected to expand 3.3 percent in the year starting July 1 after growing 2 percent in the previous 12 months, Junior Minister Khar said in her weekend budget speech. Growth averaged an annual 6.8 percent over the preceding five years.

The $146 billion economy slowed after the global recession eroded exports and foreign investment. The situation may get worse as the government intensifies its fight against Islamic extremists in the northwest Swat Valley and struggles to provide food and shelter for people displaced by the war.

“Persistently high inflation, tough measures implemented under the IMF program, and the deteriorating security environment are weighing heavily on the economy,” Standard Chartered’s Ali said. The slowdown “has affected the government’s tax revenues, limiting its ability to increase support for the 3 million people displaced by fighting or to finance military operations.”

Ali expects the central bank to lower interest rates by 200 basis points to 12 percent at its next meeting in July.

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Federal Reserve Chairman Ben S. Bernanke’s success in stabilizing the financial system through unprecedented use of the central bank’s powers may come at the cost of Congress limiting some of that authority in the future.

As the credit crisis ebbs, U.S. lawmakers are increasingly questioning the actions the Fed took to counter the turmoil. Representatives Edolphus Towns of New York and Darrell Issa of California said yesterday they will call Bernanke to Capitol Hill to testify on his role in pushing through Bank of America Corp.’s purchase of Merrill Lynch & Co. last year.

Even House Financial Services Committee Chairman Barney Frank, who has praised Bernanke in the past, is rethinking proposals to make the Fed the sole overseer of risk in the financial system.

“Members of Congress are finally coming to terms with what the Fed can do,” said Dino Kos, a managing director at Portales Partners LLC in New York and former executive vice president at the New York Fed. “Central banks are able to make far-reaching decisions quickly without congressional approval.”

The result: The Fed may find itself subject to more congressional scrutiny than in the past and might even have some of its powers to intervene in the financial markets and the economy clipped. The fresh questions about the Fed’s steps may also affect Bernanke’s chances of securing a second term as Fed chief when his current four-year stint expires in January.

The White House, for its part, yesterday reiterated its backing for Bernanke as lawmakers queried Bank of America Chief Executive Officer Kenneth Lewis about the Merrill takeover.

Wielding Power

Over the past year, Bernanke has used emergency authority not deployed since the Great Depression to avert a collapse of the financial system.

He employed the Fed’s balance sheet to purchase more than $20 billion in risky assets from Bear Stearns Cos. to facilitate the firm’s merger with JPMorgan Chase & Co. He committed $83 billion to stabilize insurer American International Group Inc., and billions more in loss insurance against the portfolios of Citigroup Inc. and Bank of America.

The moves have won plaudits in the financial markets for the Fed and Bernanke. Only seven of 58 economists who responded to an e-mail survey this week by Bloomberg News said the 55- year-old chairman shouldn’t be reappointed.

“He’s done a very good job,” said Laurence Meyer, a former Fed governor who is now vice chairman of St. Louis-based Macroeconomic Advisers. “He’s responded aggressively and creatively to the financial crisis.”

Pressure on Lewis

Now, as financial markets stabilize, it’s that assertiveness and ingenuity that is being called into question on Capitol Hill.

The latest controversy is over the pressure that Bernanke and then-Treasury Secretary Henry Paulson put on Lewis to close the Merrill deal at the end of last year. Lewis, 62, told Congress yesterday he decided to proceed with the takeover after regulators said they might remove management.

“There was a whole lot of back-room dealing,” Towns, the Democratic chairman of the House Oversight Committee that heard Lewis’s testimony, said in a Bloomberg Television interview yesterday personal loans. “We plan to get to the bottom of that.”

Issa, the senior Republican on the committee, said in a separate interview that he hasn’t decided yet whether he thinks Bernanke should keep his job as a result of his actions.

“Bernanke will be hurt by the disclosure that he arm- twisted Lewis,” predicted David Jones, president of Denver- based DMJ Advisors and author of four books on the Fed.

Greater Oversight

Many lawmakers are already pushing for greater oversight of the central bank through broader audits of its operations by the Government Accountability Office. A bill that would remove limits on GAO audits of the Fed and direct the agency to issue a report by the end of next year was introduced by Representative Ron Paul, a Texas Republican, and has 208 cosponsors.

House Republicans on the Financial Services Committee, led by ranking member Spencer Bachus of Alabama, have also proposed stripping the Fed of its supervisory powers and limiting its emergency authority to give bailout loans.

Support for the Fed in Congress to become the leading systemic-risk regulator has also faded. The Treasury will propose that role for the Fed when the administration rolls out its proposals for financial-regulatory reform, people familiar with the matter said.

No Single Agency

“I don’t think one single agency like the FSA (Financial Services Authority) in England is the best way to go,” Frank, a Massachusetts Democrat, said yesterday in an interview.

Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said last month he has “great skepticism” over expanding the central bank’s authority.

The Fed has already responded to the congressional criticism by providing more information about its credit facilities. For the first time, the central bank on June 10 announced details on the number of borrowers and the ratings of securities pledged as collateral for loans. The data came in a new report to be released monthly.

Bernanke has also sought to portray the Fed’s expansive use of its powers to prop up the financial system as necessary for the good of the economy.

Main Street Man

“I come from Main Street,” he told CBS News’s “60 Minutes” television program in March, while standing in his hometown of Dillon, South Carolina. “I care about Wall Street for one reason and one reason only, because what happens on Wall Street matters to Main Street.”

After the show, Bernanke received a phone call from the White House. “I called him right after the 60 minutes interview to tell him I thought he did a great job,” Rahm Emanuel, President Barack Obama’s chief of staff, said in an interview.

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The dollar’s status as the world economy’s sole reserve currency may deteriorate, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

“We may see complementary reserve currencies,” Roubini said at a conference today in Athens. While it’s “not going to happen overnight,” the development “will diminish the role of the dollar over time.”

The dollar’s status has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign-exchange reserves.

Russian President Dmitry Medvedev last week renewed his call for consideration of a supranational currency to challenge the dollar. Chinese Central Bank Governor Zhou Xiaochuan said in March that the International Monetary Fund should create a “super-sovereign reserve currency.”

For the U.S., a change in the role of the dollar would risk increasing its financing costs and undermining its preeminent place in the world economy. The yield on the 10-year Treasury bond jumped to 3.9 percent this week from a low of 2.2 percent in January.

The dollar today weakened against the euro, falling 0.3 percent to $1.4019 per euro as of 10:37 a.m. in London. The currency has dropped 10 percent against the euro in the past three years.

Reassurance

Treasury Secretary Timothy Geithner sought to reassure investors last week during a trip to China, saying June 2 that Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy best payday advance.” Demand for record sales of U.S. debt will be sufficient to meet supply, he said.

The U.S. and China will hold economic talks in Washington in the week starting July 27. Premier Wen Jiabao in March called for the U.S. “to guarantee the safety of China’s assets.”

Roubini, 51, also said today that the U.S. can’t count on a strong economic recovery to restore its finances. The world economy will remain weak for the next two years, he said, predicting growth of 1 percent in the U.S. in 2010 and stagnation in Japan and Europe.

Weakness

“Recovery will be weak, anemic, subpar,” he said. Optimists are “getting ahead of the curve” and “advanced economies are going to grow at a very slow rate” after the recession is over, he added.

Larger emerging economies such as Russia and Brazil are also seeking more clout in the international financial system by pouring their reserves into IMF bonds, economists say.

Russia and Brazil have announced plans to buy $20 billion of bonds from the IMF and diversify foreign-currency reserves. China will purchase $50 billion and India may announce similar funding, Brazil’s Finance Minister Guido Mantega said.

Even so, those countries may struggle to elbow aside the dollar as long as they keep buying U.S. paper to hold down their own exchange rates and maintain trade surpluses.

The so-called BRICs countries increased foreign exchange reserves by $60 billion in May and accumulated dollars at the fastest pace since before the credit markets froze last September.

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Hong Kong and Singapore are among six economies in Asia that are most exposed to the global recession and will take time to recover, possibly spurring “substantial” job cuts in the countries, according to Nomura International Ltd.

South Korea, Malaysia, Taiwan and Thailand also have been affected by the slump, Rob Subbaraman, chief economist at Nomura in Hong Kong, wrote in a report published today.

“If the six most exposed countries fail to recover quickly, as we expect, firms may have little choice but to reduce their workforces substantially,” Subbaraman wrote, noting that companies may have been holding onto underutilized workers in South Korea, Singapore and Taiwan.

Hong Kong’s jobless rate rose to a three-year high of 5.3 percent in the three months ended April 30 while the rate in South Korea remained at the highest level since 2005 last month freecreditreport. Unemployment in the two countries may rise further, according to the Nomura report.

“All of the main engines of demand — exports, consumption and investment — are spluttering in Asia’s six most exposed economies,” he wrote. “Unlike after the Asian crisis, the region cannot rely on a strong rebound in exports to drive the recovery. Nor is China likely to provide much support.”

The peak-to-trough decline in year-on-year gross domestic product in the six countries is now in the double digits, according to the report. Hong Kong’s economy has posted a 15 percent drop, on a par with the 1997-1998 Asia crisis, while Singapore’s GDP is down 16 percent, Nomura said.

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