Finance & Business World

U.K. manufacturers said credit constraints eased in the past two months as the cost of financing their debt stabilized further, according to the Engineering Employers Federation.

The proportion of British companies reporting an increase in the cost of new borrowing dropped to 40 percent from 47 percent in the previous quarter, the EEF said in a report today. The lobby group based its findings on a survey of 328 companies taken between Jan. 28 and Feb. 17.

“Evidence that credit constraints have started to calm down will help build some confidence across the sector,” Lee Hopley, chief economist at the EEF, said in an e-mailed statement. “The key question is whether the banks will be there for manufacturers as a return to growth generates greater demand for finance.”

The EEF forecast last year that the economy, which expanded 0.1 percent in the fourth quarter, will grow 0.9 percent in 2010. Prime Minister Gordon Brown is counting on the credit squeeze to ease further, aiding the recovery in time for an election which he must call by June.

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Australia’s economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, central bank Governor Glenn Stevens said.

“Monetary policy must therefore be careful not to overstay a very expansionary setting,” Stevens told lawmakers at a parliamentary committee hearing in Canberra today.

Policy makers said this week their decision to unexpectedly keep interest rates unchanged this month was “finely balanced” amid concern that European sovereign-debt risks may weaken the global economic recovery. Stevens said borrowing costs in Australia are still between 50 and 100 basis points below what the central bank considers “normal.”

“Stevens is quite bullish on domestic growth, but whether that translates into a March hike is another matter,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. “I don’t know what more they need to see to hike again — it should already be very clear cut.”

The Australian dollar traded at 89.25 U.S. cents at 9:56 a.m. in Sydney from 89.38 cents before the governor’s testimony began. The yield on two-year government bonds rose six basis points, or 0.06 percentage point, to 4.31 percent from 4.25 yesterday. A basis point is 0.01 percentage point.

Stevens was the first central banker in the world to raise borrowing costs three times last year, taking the cash rate target to 3.75 percent in December from 3 percent at the start of October.

‘Further Adjustments’

“If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent” with the bank’s target range of 2 percent to 3 percent, Stevens said.

Stevens’s testimony today came after the Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent, another step in the U.S. central bank’s gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed left the benchmark overnight lending rate in a range of zero to 0.25 percent at its meeting on Jan. 27.

Traders are betting there is a 38 percent chance of a quarter- percentage-point rate increase when the Reserve Bank of Australia next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:02 a.m. Prior to today’s testimony, chances of a move stood at 40 percent.

Below Normal

“We’re still below normal, I would say, which hitherto has been the appropriate place to be,” Stevens said. “There’s a little distance to go before you could characterize interest rates as normal.”

Stevens said unemployment has peaked at less than 6 percent, “much lower than we or most others forecast.”

Australia is experiencing its biggest jobs boom in five years. Employers added 194,600 workers in the five months through January, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels.

The jobs surge should help spur the economy, one of the few to skirt last year’s global recession after Prime Minister Kevin Rudd distributed more than A$20 billion ($18 billion) in cash to households and began spending another A$22 billion on roads, railways and schools.

The central bank forecast on Feb. 5 that gross domestic product will rise at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent in the final quarter of 2009.

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JEFFERSON CITY — Missouri officials say they can’t prevent a tax dodge used by some wealthy investors in the state-sponsored college savings plan.

So instead of trying to police it, officials want to legalize it.

At issue is how long money invested in the Missouri Saving for Tuition program — MOST for short — must stay in an account to earn a state tax deduction.

Missouri set up the program a decade ago to give working families a low-cost way to save for college. Accounts can be opened directly through the state for as little as $25.

Investors pay no federal or state taxes on profits when they withdraw money to pay for college. The program is known as a 529 plan, after the section of federal law that authorized such plans in 1996 and spurred their growth.

MOST has attracted 123,000 accounts holding $1.3 billion in investments.

Like most states, Missouri sweetened the deal by adding a state tax deduction. Families can shield up to $16,000 a year in contributions from Missouri income taxes.

That money is supposed to stay put at least 12 months to be eligible for the tax break. Sen. Delbert Scott, R-Lowry City, sponsored the restriction in 2006.

"I found out that there were people who would deposit the money the last day of December, use it to pay tuition the first day of January, and take the tax deduction," Scott said.

For example, a parent who routed $8,000 through a MOST account at year’s end could save about $480 by avoiding the state’s 6 percent income tax. A married couple taking the maximum deduction could save twice that, or $960.

Scott said that wasn’t the Legislature’s intent.

"This was set up to be a savings account rather than an automatic tax deduction for those who can pay cash as they go," he said.

But the restriction has never been enforced.

"Some people would view it as a loophole," said Joe Hurley, founder of savingforcollege.com, a respected website that rates all 529 plans. "But just about every state that has a deduction has no minimum holding period, so it’s a loophole in pretty much every state."

State Treasurer Clint Zweifel, whose office oversees the MOST program, said it would cost MOST $360,000 to set up a tracking system to make sure accounts didn’t violate the 12-month rule. That oversight could discourage investors, he said.

"It’s creating an administrative burden and red tape that puts government as some sort of Big Brother, telling people how to save for college," Zweifel said.

"Who are we to tell them, when they make a contribution, whether it has to sit for 10 months or 22 months?"

Zweifel said few people used the loophole anyway.

He estimates that about 65 people used it last year to shield $219,000 in contributions. That analysis is based on the number of Missourians who opened new accounts in December 2008 and made a withdrawal in January 2009.

MOST attracted $198 million in investments in 2008, so "we’re talking about a tenth of a percent of contributions," Zweifel said.

Even Scott agrees. He now sponsors the bill repealing the rule he authored in 2006. Scott said a 2008 change in the MOST program made it counterproductive to enforce the restriction.

Missouri extended its deduction to college savings plans sponsored by other states. Most states don’t require money to be held a certain length of time, so Missourians could invest their money elsewhere and claim Missouri’s deduction.

"I think the ultimate message is, we want people to save for their kids’ college," Scott said. "This is just one of the incentives that comes along, if you’ve got the money to do it. It’s kind of an unintended consequence."

If the restriction isn’t repealed, the Missouri Department of Revenue plans to finally try to enforce it next year.

The agency added a note to its 2010 tax form instructions, warning taxpayers not to take the deduction for contributions and earnings withdrawn after less than 12 months.

Scott’s bill is SB772.

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ST. LOUIS — The Budweiser Clydesdales might be headed back to the Super Bowl after all.

Just two days after trumpeting a lineup of nine Super Bowl ads that did not include the popular horses, Anheuser-Busch said Thursday it has reconsidered. The brewer plans to release a Clydesdales ad and two other Budweiser ads on its Facebook page today to gauge public reaction.

The original Clydesdales spot — which fell short in focus group testing — has been reworked and might make it to the big game, according to A-B’s top marketing executive.

"This was a surprise opportunity that wasn’t in our hands until yesterday," Keith Levy, A-B marketing vice president, said Thursday evening.

Levy downplayed the notion that the change of heart was motivated by widespread criticism of A-B’s original decision to bench the Clydesdales, which have appeared in Budweiser ads for at least the last eight consecutive Super Bowls.

"We simply did not have a spot in our hands that did well" in testing, Levy said, although he noted A-B did "have some contact" from upset consumers that could have spurred A-B to revisit the ad.

Levy also said this was not part of an intentional publicity plan. Super Bowl advertising expert John Antil believed him.

"I think this is more about them just saving face," said Antil, a University of Delaware marketing professor. "I don’t think this is some kind of test."

Sidelining the Clydesdales drew plenty of criticism. Readers called and complained to the Post-Dispatch and on message boards. Twitter was burning. "Say it ain’t so! They’re the reason I watch!" wrote one woman. "What are they thinking?" lamented another. And: "Boo Hiss! Everybody loves the Clydesdales!"

The Clydesdales debuted in Budweiser TV ads in 1956 and have appeared in 15 Super Bowl ads. A-B bought five minutes of the pricey, precious ad time — an estimated $2.5 million for a 30-second spot— for the Feb. 7 football game, the year’s biggest advertising spectacle that is expected to be watched by at least 100 million people.

Levy said three ads would be released sometime before noon today at facebook.com/budweiser, the brand’s page on the social networking site. If the brewer selects the Clydesdales spot for the Super Bowl, it could result in a total reworking of A-B’s ad lineup because the new horse spot is 60 seconds long and would be replacing a 30-second spot.

The ad, created by Chicago ad agency DDB, opens with two baby horses — one is a Clydesdale — separated by a fence and running through a field. The ad follows the horses as they grow up together. It is a story about friendship and lifelong bonds, Levy said.

Kind of like those between some consumers and the Clydesdales.

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President Obama will propose a new tax on financial institutions Thursday to ensure that taxpayers who bailed out banks get paid back, according to a senior administration official.

The White House wants to raise as much as $120 billion through a new tax on banks to cover losses in the federal bailout program.

The law that created the $700 billion Troubled Asset Relief Program empowered the president to ask Congress to recoup money if bailouts were not paid back in full.

TARP dictates that the Office of Management and Budget consider such action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.

When the TARP bill was hastily debated, the provision was key to winning enough support from wary lawmakers to push the bill through Congress.

This new proposal to tax banks has been under discussion since August, a senior administration official said Tuesday.

The federal bailout program has always been a controversial topic, but news of executive bonuses now being awarded for banks’ stellar performance in 2009 is throwing new fuel on populist anger.

Congress would still have to approve any proposed new tax.

Robert Gibbs, the White House press secretary, would not discuss on Monday how a possible bank fee would fit into Obama’s fiscal year 2011. But Gibbs said it is the president’s "goal" to ensure the "money that taxpayers put up will be paid back in full."

While most of the big banks have started paying back their TARP investments, the government still has a lot of money on the line and is likely to for years to come.

Last month, the Treasury estimated that the net cost of TARP to taxpayers would be $41.4 billion.

For example, Treasury Secretary Tim Geithner said last month that the bailouts of the automakers and insurer American International Group (AIG, Fortune 500) would not be paid back in full short term personal loans.

"There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM and Chrysler," Geithner told an oversight panel.

Yet, the financial industry tax under discussion could impact the entire financial industry, a prospect the banking industry opposes.

Although few details are available about the proposed fee, the administration official suggested banks would be required to pay, even if the losses were incurred by GM and Chrysler.

"Imposing new taxes on top of the increased regulatory costs will weaken the industry, just when the industry is helping lead the economic recovery," said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group.

And it’s still unclear what, if anything, can be done to prevent the fee from being passed to bank account holders.

U.S. Chamber of Commerce President Thomas Donohue said Tuesday he expected any new fee imposed would be passed on to consumers.

"If you don’t pass it on to the consumer, than you’re going to have smaller profits, and then if you have smaller profits, your stock goes down," Donohue said.

The total revenue collected from the tax would be no higher than $120 billion, since that is the highest conservative estimate of the cost of TARP, the senior administration official said. However, the Treasury Department expects the total loss number to shrink over the course of future years.

- CNN White House Correspondent Dan Lothian contributed to this report. 

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India’s industrial production grew at the fastest pace in 25 months in November, strengthening the case for the central bank to raise interest rates in the first half of this year.

Output at factories, utilities and mines rose 11.7 percent from a year earlier after gaining 10.3 percent in October, the statistics agency said in New Delhi today. The gain exceeded the median estimate of 10 percent in a Bloomberg News survey of 25 economists.

The acceleration of India’s economy, Asia’s third-largest, parallels a rebound in China that may also see policy makers there boost borrowing costs in the coming months. India’s biggest stock-market advance in 18 years, along with fiscal and monetary measures, have stoked demand for cars made by Maruti Suzuki India Ltd. and plasma screens from LG Electronics Inc.

“The pace of growth is much stronger than anticipated and clearly indicates that consumption is in a self-propelling mode,” said Shubhada M. Rao, chief economist at Yes Bank Ltd. in Mumbai. “And with inflation surging, the probability of an increase in the cash reserve ratio in the central bank’s Jan. 29 policy statement is now very high.”

India’s bonds fell after the report. The yield on the 6.35 percent note due in January 2020 climbed to the highest level in almost two months, rising by five basis points to 7.71 percent as of 1:05 p.m. The Bombay Stock Exchange’s Sensitive Index declined 0.51 percent at 2:11 p.m., after rising 0.4 percent earlier, on concern a faster recovery will prompt the central bank to raise rates.

Stimulus Measures

Economies are recovering across Asia after the region’s policy makers unveiled about $1 trillion in stimulus measures and cut rates to spur growth. China’s industrial production rose 19.2 percent in November and its exports climbed 17.7 percent in December.

Recent data show growth is gaining traction in India as well, with manufacturing rising at the fastest pace in seven months in December, according to the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics. Exports surged to a 15-month high in December after rising 18.2 percent in November, the first increase in 14 months.

RBI Governor Duvvuri Subbarao “should begin monetary action by shrinking the excess liquidity in the local money markets and then move to increasing policy rates around March and April,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore. The central bank “will be concerned about the excess liquidity and second-order inflationary effects of high food inflation.”

Food Prices

India’s benchmark wholesale-price inflation rate rose to 4.78 percent in November, more than three times October’s 1.34 percent. Wholesale food prices soared 18.22 percent in the week to Dec. 26 from a year earlier, near the most in 11 years. The government is next due to release food inflation data on Thursday.

“This release, together with the likelihood of a strong December inflation number on Thursday, seals India’s near-term interest rate fate,” said Robert Prior-Wandesforde, Singapore- based senior Asia economist at HSBC Holdings Plc. He expects the RBI to start increasing its key policy rates in April after raising lenders’ reserve requirements at this month’s meeting.

Subbarao slashed the cash reserve ratio by 400 basis points to 5 percent between October 2008 and January 2009 to shield the economy from the global recession. The central bank has left its reverse repurchase rate and repurchase rate unchanged since April, after respective cuts of 2.75 and 4.25 percentage points.

Fridges, TVs

By comparison, China’s one-year lending rate is at a five- year low of 5.31 percent and its one-year deposit rate is 2.25 percent.

Manufacturing output increased 12.7 percent in November from a year earlier, accelerating from an 11.1 percent gain in October, today’s report showed. Mining grew 10 percent, compared with 9 percent in the previous month and electricity rose 3.3 percent from 4.7 percent. Production of consumer durables such as refrigerators and televisions surged 37.3 percent in November, compared with a 20.2 percent gain.

Prime Minister Manmohan Singh last year cut taxes on consumer products, increased spending on roads and utilities, raised salaries for government workers and waived farm loans.

The central bank injected about $130 billion into India’s banking system by reducing interest rates and lowering lenders’ reserve requirements. That helped the $1.2 trillion economy to grow 7.9 percent in the three months ended Sept. 30, the most in 1 1/2 years.

Surpassing China

Faster growth has attracted overseas inflows into stocks, taking the Sensitive Index to the highest in 18 years in 2009. The rupee gained 4.8 percent.

India’s growth may quicken to 10 percent in a “couple of years,” exceeding that of China as early as 2014, Kaushik Basu, chief economic adviser to the South Asian nation’s finance ministry, said Jan. 4. The government has no plans to “suddenly” withdraw last year’s stimulus, he said.

The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other carmakers introduced 10 new models at the Delhi Auto show last week. Passenger car sales hit 1.43 million units in 2009, the most in three years, according to the Society of Indian Automobile Manufacturers on Jan. 8.

ArcelorMittal, the world’s biggest producer of steel, and Posco, the sixth-biggest maker of the alloy, plan to set up new steel mills in southern India. Posco will invest 323 billion rupees ($7 billion) on a mill in Karnataka state, the regional government said Jan. 7. ArcelorMittal plans to sign an accord in June for a 300 billion-rupee project in the same state.

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Man doth not live by financial capital alone but also by human capital. And, of course, Warren Buffett had a lot to say about that, too, when he took Phil DeMuth and me to dinner a couple of weeks ago in bitterly cold, snowy Omaha.

"It’s vital to be able to communicate well," he said. "Just being able to communicate with others on the job adds at least 50% to your value." Apt words indeed from the man whose annual report (I would guess) is read by more people than all of the other annual reports in the world combined, and whose words have probably saved more lives than any book except the Bible.

"It’s also incredibly important to get along with people," Buffett also said. He talked at length about his early days working with Ben Graham’s firm and how he made it a point to not only work very hard but to get along well with everyone he worked with, and still makes it a point. He spoke highly of an old standard, Dale Carnegie’s "How To Win Friends and Influence People" — a book that still teaches me and one that I consult almost every day.

I asked him about the problems of having a significant part of the labor force that has little intellectual aptitude and learns very little in schools. "For some of them," he said, "there will be better and better tools, tools that allow even people with modest skills to do useful work."

But when I pressed him about the segment of the population that does not really care to learn at all, such as members of violent gangs or others who just refused to learn, he sighed and said that the government would have to come up with some make-work projects for them, projects that paid a modest wage and allowed such people to have some feeling of self-esteem. (I wonder whether they would rather do those jobs than what they are doing….)

But what about people who refused to learn how to do work that is a way to convert human capital into financial capital, i instant payday loans completely online.e., people who refuse to learn to do value investing? He threw up his hands. "I learned it right away when Ben Graham said it," he said. "It was like a vaccination that just took right away. Some people can get the same shot and it doesn’t take at all. Some do get it right away." (I am paraphrasing.)

He was kind enough to sign a copy of his famous article, "The Superinvestors of Graham-and-Doddsville," about value investing compared with other forms of investment, "To Ben Stein, who understood this a long time ago," and I only wish it were true.

In my case, the vaccination only works sporadically. (Buffett has also famously said that in any card game there’s always one sucker and if you don’t know who it is, it’s probably you. I do know who it is, and it’s definitely usually little me…except when it isn’t.)

The overall vibe I get from Warren Buffett, besides his astonishing kindness, mind-boggling intelligence, and perfect, self-deprecating humor, is a reminiscence of something once said by a childhood neighbor who knew Ted Williams. The great baseball player, said my neighbor, had vision so good he could see the stitches on a fastball zooming towards him. No matter how much he might try to explain to you how to do it, if you did not have the natural talent to do it, you couldn’t do it.

But what if you could have made a wager on how many home runs Williams would hit? Or what if, for a few dollars, you could have gotten a share of Ted Williams endorsements? That’s what astute people could have done with Buffett, and it was a rare opportunity.

In the meantime, value investing starts at home, with building up your own value as an earner, enough so that you can some day be a Superinvestor of your ownville. 

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A free-trade agreement between China and Southeast Asia comes into force today, consolidating a sixfold surge in economic activity over the past decade between countries representing a quarter of the world’s population.

The agreement expands a limited 2005 trade area between China and the 10-member Association of Southeast Asian Nations, scrapping tariffs on about 90 percent of goods. By 2015, duties must be cut to no more than 50 percent on “highly sensitive” items, including ambulances in Brunei, popcorn in Indonesia, snowboard boots in Thailand and toilet paper in China.

China’s economic clout in Southeast Asian countries has risen over the past decade as policy makers slashed tariffs on electronics, automobile parts and computer chips. Japan, India, Europe and the U.S. have followed China in courting Asean, home to investments from Intel Corp., the world’s largest maker of computer chips, and Toyota Motor Corp., the biggest carmaker.

“This FTA is going to make a difference at the margin to some Asean countries but not others,” said Razeen Sally, a director of the Brussels-based European Centre for International Political Economy, a trade-policy research group. “Basically it takes down the tariffs but does little on all the non-tariff barriers where you would have much bigger gains to trade.”

China’s trade with Asean has jumped sixfold since 2000 to $193 billion last year, surpassing that of the U.S. China’s share of Southeast Asia’s total commerce has increased to 11.3 percent from 4 percent in that time, whereas the U.S.’s portion of trade with the bloc fell to 10.6 percent from 15 percent, Asean statistics show.

Deficit Widens

During that time, Asean’s trade deficit with China widened by five times to $21.6 billion. The bloc reported a $21.2 billion trade surplus with the U.S. last year, down 12 percent from 2000.

The trade agreement would hit high-tariff industries in Indonesia and the Philippines more than other Asean countries, Sally said. Trade in parts and components, the “central artery” of China-Asean economic ties, won’t be affected much because most of those tariffs are already near zero, he said.

Opposition to the trade agreement has been loudest in Indonesia, where the government has sought to placate concerns that industries including textiles, food and electronics will suffer. Indonesia should renegotiate the deal because the textile industry may see its domestic market share decline by 50 percent as cheaper Chinese goods enter the market, said Ade Sudradjat, vice chairman of the Indonesian Textile Association.

The government is setting up a team to monitor trade practices, Hatta Rajasa, coordinating minister for the economy, told reporters in Jakarta Dec. 30.

“When a nation has cheap products, we must see whether there’s unfair trade in it, such as unfair subsidies,” he said. “We must be proactive.”

Port Inspection

Indonesia, Asean’s biggest economy and home to about 40 percent of the bloc’s 584 million people, has required Chinese exports of garments, electronics, shoes, toys and food to be shipped from designated ports with every container inspected upon arrival. China, poised to overtake Germany as the world’s largest exporter this year, faces 101 trade investigations in 19 countries, state-run Xinhua News Agency reported this month.

Asean governments should resist the temptation to raise non-tariff barriers, the association’s secretary general, Surin Pitsuwan, told Xinhua in an interview published today.

To help its exporters, China has halted the yuan’s gains against the dollar from July last year. In 2009 the yuan has remained largely unchanged against the dollar while Indonesia’s rupiah climbed 15.5 percent, Thailand’s baht advanced 4.2 percent and the Philippine peso increased 2.3 percent.

Asean includes Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Wide economic disparity has hindered the group’s efforts to form a single market, as the purchasing power of the group’s four richest countries was 10 times greater than that of the other members last year, according to statistics on the bloc’s Web site.

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Shoppers appear to have given the nation’s stores a needed last-minute sales surge.

Early readings from Toys R Us, Sears Holdings Corp. and several mall operators show packed stores on Christmas Eve following a busy week fueled by shoppers who delayed buying, waiting for bigger discounts that never came or slowed by last weekend’s big East Coast snowstorm.

Stores are counting on these stragglers in a season that so far appears slightly better than last year’s disaster. The jury is still out, because the week after Christmas accounts for about 15 percent of sales as gift card-toting shoppers return to malls.

"The procrastinators were really out in force," says David Bassuk, managing director in the retail practice of AlixPartners, a global business advisory firm.

"But I think retailers needed to be more aggressive to fight for those sales. A lot of people are still willing to hold out until after Christmas because the deals weren’t as good."

A Christmas Eve snowstorm in the nation’s heartland was slowing some shoppers after snarling roads in the mountain states a day earlier.

Wally Brewster, spokesman at General Growth Properties said merchants in his centers said they had made up for lost sales.

Still, he expects overall holiday sales will be only about even with a year ago payday loans with no faxing.

Caution remained. Karen MacDonald, spokesman for mall operator Taubman Centers Inc., noted that stores said many shoppers, remembering the 80 to 90 percent clearance sales they found last year, were asking whether the discounts were going to get any deeper.

And Rebecca Stenholm, a company spokesman for mall operator Macerich Co., reported that more people were using cash to pay for gift cards than a year ago, reflecting tight credit and a desire to pay down debt.

The full picture won’t be known until merchants report December sales Jan. 7. But most expect merchants’ fourth-quarter profits should be intact because they didn’t have to cut prices more than they’d planned as they were cushioned by lean inventories.

ShopperTrak is sticking to its prediction for a 1.6 percent gain, compared with a 5.9 percent drop a year ago.

The National Retail Federation expects that total retail sales will slip 1 percent, though some experts say that might be a bit too cautious.

A year ago, they fell 3.4 percent by the trade group’s calculations.

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Senate Democrats are preparing to drop a compromise health-care plan that would allow 55- to 64-year-olds to buy into Medicare because of opposition from Connecticut Sen. Joe Lieberman, two senior Democratic sources said Monday.

"It’s what the White House wants, and there aren’t many other options that allow us to finish by Christmas," said one source.

Lieberman, an independent who caucuses with the Democrats, has emerged as the majority party’s main obstacle to its efforts to get a health care bill through the Senate before Christmas. He ratcheted up his public opposition to the bill Sunday by threatening to join a Republican filibuster if the legislation contains either a government-run public health insurance option or a proposed alternative that would expand Medicare to people as young as 55.

"I think the danger always is you try to add too much onto a bill," he told reporters Monday evening. He said he supports the "core" of the bill, including tighter regulations on private insurers — but he wants Democrats to "take off some of this stuff that runs the risk of creating federal debt, and moves toward a government takeover of insurance, which I think would be bad."

Unanimous Republican opposition so far means Senate Democrats need all 60 votes in their caucus to close debate on the sweeping health care bill. Final passage of the bill would then require only a simple majority of 51.

Lieberman supported letting older workers buy into Medicare in 2000, when he was the Democratic vice presidential candidate, and as recently as September in comments to a Connecticut newspaper.

But he said Monday that the idea was "no longer necessary," since the Senate bill includes subsidies to help people over 55 and older buy insurance coverage before they become eligible for Medicare.

"I was suggesting various ideas for health care reform that did not involve the public option, and that was the focus at that time," he said. "But the important thing is I’m for health care reform, and if we get together, we’re going to deliver a health care reform bill that will provide the ability to get health insurance to 30 million people that don’t have it now."

And Lieberman spokesman Marshall Wittmann said that now, "We have a huge national deficit and a program that analysts indicate is in dire fiscal straits in 2009."

Emergency meeting Senate Democrats held an emergency meeting Monday night to discuss the issue, which threatens to derail the Obama administration’s push for a sweeping reform of U.S. health insurance. Although a final decision was not made at Monday night’s meeting, a second Democratic source said a final decision could be made at a White House meeting Tuesday between the Senate’s Democratic majority and President Barack Obama.

"I think there is a fundamental understanding of the direction we’re going in," said Sen. John Kerry, D-Massachusetts. Before the meeting, liberal Democrats Tom Harkin of Iowa and Jay Rockefeller of West Virginia indicated that the Medicare buy-in would likely be dropped.

While they didn’t like the idea, they suggested they would support a health care bill anyway payday loan lenders. Democrats "may have to do what Mr. Lieberman wants," Harkin told CNN. The Medicare expansion was part of a package of provisions announced by Reid last week as an alternative to a government-run public health insurance program, which lacked enough support among Democrats to break a filibuster.

Negotiated by a team of 10 Democratic senators — five liberal and five moderate — the compromise package was hailed by Reid, Obama and others as an important step forward in the health care debate. The package also would allow private insurers to offer non-profit health coverage overseen by the government.

Many senators have reserved judgment on the compromise proposal until the non-partisan Congressional Budget Office (CBO) provides its analysis of how much it costs. Senate Majority Leader Harry Reid would discuss no specifics of a bill after Monday night’s caucus, telling reporters he would wait until the CBO finished its estimate of a revised bill’s price tag.

But he said the measure "saves lives, saves money, and saves Medicare." "I am confident that by next week we’ll be on our way to forward this bill to the president," he said.

Backing public option Most Democrats support the public option as a non-profit competitor to private insurers that would expand coverage and bring down prices. Republicans and some moderate Democrats, along with the health insurance industry — one of the major employers in Lieberman’s home state — oppose a public option, calling it a first step toward a government takeover of the U.S. health care system.

Lieberman first expressed possible opposition to the health care bill in late October, saying he would join a GOP filibuster if the measure contained the public option. Asked about Lieberman’s position then, Reid said: "Joe Lieberman is the least of Harry Reid’s problems."

Another potential obstacle for Reid is moderate Democrat Ben Nelson of Nebraska, who said Sunday said he cannot support the Senate bill without tighter restrictions on federal funding for abortion. The Senate last week defeated an amendment proposed by Nelson and two other senators that would adopt tougher language on abortion funding contained in the House health care bill.

A compromise on the abortion language is possible, said Nelson, one of 10 Senate Democrats who negotiated in private last week on the public option compromise.

If the Senate eventually passes a health care bill, its version will have to be merged with the version the House of Representatives passed in November, which includes a public health insurance plan.

The final bill would then need approval from both chambers before going to Obama to be signed into law. Obama and Democratic leaders have said they want the bill completed this year. The Senate would need to finish its work this week to leave a realistic chance of meeting that schedule.

–CNN’s Dana Bash, Ted Barrett and Tom Cohen contributed to this report.  

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