Finance topics

Bank of England policy makers voted unanimously to cut the benchmark interest rate to 2 percent this month and refrained from a bigger reduction on concern it may prompt about an “excessive” drop in the pound.

The Monetary Policy Committee, led by Governor Mervyn King, voted 9-0 to bring the rate to the lowest since 1951, minutes of the Dec. 4 decision published in London today show. While the economic outlook had worsened, a cut of more than one point may push the currency down too far and “undermine confidence in the economy more widely,” the minutes said.

The pound dropped to a record low against the euro after data showed unemployment rose in November at the fastest pace since 1991. King has signaled that the bank will cut the interest rate further if needed and the U.S. Federal Reserve yesterday lowered its rate close to zero.

“Given the significant probability of undershooting the inflation target in the medium term, a cut of at least 100 basis points was needed,” the minutes said. A larger reduction “might be justified by the scale of the downside risks to inflation.”

The number of people receiving jobless benefits rose 75,700 to 1.07 million, the highest level since July 2000, the Office for National Statistics said today in London. Economists had expected a gain of 44,000, according to the median of 27 forecasts in a Bloomberg News survey.

Prime Minister Gordon Brown today pledged 158 million pounds ($245 million) to help people who recently lost their jobs and said the U.K. government will do everything it can to help soften the blow of the recession.

Rate Forecast

The main U.K. lending rate has dropped 3 percentage points since October. The rate will drop another half-point to 1.5 percent at the next decision on Jan. 8, the median of 23 economists’ predictions in a Bloomberg News survey shows.

“It’s pretty clear that the MPC thinks that the general stance of policy remains out of kilter with prospects for the economy,” said Philip Shaw, chief economist at Investec Securities in London. “Rates will fall below 1 percent in the spring. The momentum of sterling means it’s vulnerable.”

The pound dropped to 91 pence per euro for the first time today, and has fallen more than 24 percent this year. The depreciation “should act to support net export growth,” policy makers said in the minutes payday loans for bad credit.

“Financial markets had priced in a cut of 100 basis points,” the minutes said. “There was a risk that going further could cause an excessive fall in the exchange rate.”

Fed Decision

The Fed lowered its rate to 0.25 percent from 1 percent yesterday and said it will use “all available tools” to generate a resumption in growth. European Central Bank President Jean-Claude Trichet signaled that further interest-rate reductions may be limited after a cut to 2.5 percent on Dec. 4.

“The monetary authorities have got to be aggressive,” former policy maker Charles Goodhart, now a professor at the London School of Economics and Political Science, said in a Bloomberg Radio interview to be broadcast today. He said King should approach next year with “courage, flexibility and perhaps going a bit too far with the very serious occasion we’re in.”

More to Do

U.K. policy makers said that more needs to be done to unfreeze lending between banks.

“The committee agreed that bank rate was not the right policy instrument to tackle supply constraints in the credit market,” the minutes said. “Further measures to underpin lending growth would be needed, building on the government’s package announced in October to recapitalize and guarantee funding to the banks.”

Brown last month cut sales tax to 15 percent from 17.5 percent as part of a stimulus package for the economy. King said yesterday that will further depress prices after the U.K. inflation rate fell to 4.1 percent in November from 4.5 percent the previous month. The bank aims to keep annual price gains at 2 percent.

The U.K. economy shrank 0.5 percent in the third quarter, and the central bank last month predicted it would contract through most of next year. Policy makers said at the decision that surveys signaled further drops in gross domestic product in the fourth quarter and the first three months of 2009.

“The committee agreed that a significant margin of spare capacity would open up over the next couple of years,” the minutes said. “It was most likely that, without further policy action, inflation would substantially undershoot the target in the medium term.”

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The clock with the lavender plastic rim on the back wall of H&H Convenience is an hour and 18 minutes fast. This means nothing to Almaz Nebai. She tells time by the front door.

Starting at 4:30 p.m., it opens every few minutes. That lasts three hours. After that, every 20 minutes or so for another hour, then it tapers off until midnight.

A young Hispanic woman wants her regular small pack of Podium cigarettes, the cheapest at $6 with tax. A man in Docksiders and khakis buys two cans of Arizona tea and stuffs them into a backpack. An Asian woman in heels pulls money from her Louis Vuitton wallet to pay for two packs of DuMaurier. A middle-aged man wants a small Peter Jackson Light with his two cans of Arizona.

"If I get a dollar from the cigarettes, I’m happy," says Nebai.

"With Arizona, there’s not much profit, a few cents, but my customers love it. It’s good for you."

Times are tough all over, but "not much profit," that might as well be the theme song for Ontario’s convenience stores, which have been struggling to get by since the province banned the open display of cigarettes last summer. Between 45 and 65 per cent of corner store profits came from cigarette sales; since such "power walls" were banned that’s been cut by 30 to 50 per cent.

Dave Bryans, president of the Ontario Convenience Stores Association, expects a third of Ontario’s 10,000 convenience stores will be out of business in five years unless the province curbs illegal tobacco sales and starts letting proven, reliable stores sell beer and wine.

But, for now, shopkeepers like Nebai, earning just pennies per hour, make do selling what they can.

Cigarettes, snacks and drinks pay the bills, but not all of them. Since she bought the business in April and moved into the flat at the back, she’s been hunting for deals at Costco and Cash and Carry, clicking through Internet sites to find better suppliers. Rent is $1,600 a month.

A woman at Cash and Carry sent Nebai to Imperial Tobacco, so she gets some brands delivered. The rest she buys every morning, before she opens, whatever she is low on. Podium, made in Caledonia by Lanwest Manufacturing for sale off-reserve, comes from Costco.

With a diploma in accounting from Algonquin College in Ottawa and marketing courses from Seneca, Nebai has plans for this corner north of the Dundas West subway station. There’s a Slovenian deli next door, a Jehovah’s Witness temple down the street. Budget, Price Chopper and Shoppers are nearby. Houses on the streets behind her sell for just under a half-million. The store was Lee-Bee’s West Indian Grocery for years before a couple tried it as a variety store, then gave up and sold to Nebai. She inherited candles, ceramic frogs, hair extensions and shelves of Christmas decorations with the hardware, Pringles, canned spaghetti sauce and kitchen stuff.

Around 11 one morning, she grinds Van Houtte beans for a fresh pot, splits a pack of Hostess cupcakes on two napkins and settles down to talk.

"I loved Ottawa, but when I came here, I loved Toronto, too. It was my first time driving on a highway when I came here from Ottawa."

"I found this place online for a reasonable price. It’s a really good location, the main customer is from the subway, people back and forth in the morning and evening guaranteed approval payday loans. During the day, they come from the neighbourhood. There are a lot of East Bloc people living around here. Everyone is very nice, very nice. It was a struggle at first. I was sometimes shocked that nobody was here, but it’s picking up, slowly."

She and a friend left Asmara, the once-lovely Italianate capital of Eritrea, in 1985, when the 30-year civil war with Ethiopia was at its most brutal, walking for 11 days into Sudan. She was 25. "It was a terrible time. We were hiding from Ethiopian soldiers and Eritrean fighters. But the land around us as we walked was beautiful and we made a promise, my friend and I, that we would come back. She went to Sweden. She called me a few years ago to ask, `Remember the promise?’ But she is dead now, of cancer."

There’s not much room for sentimentality. A woman in a hijab and long skirt with no time to waste floats in looking for a toy for her son, who is 4 today. She leaves with Spider-Man and a long-distance calling card.

"I am so happy here," Nebai says. "There is hope for the future. I’m always thinking, planning the strategy."

She’s been asking the Ontario Lottery Corporation for a terminal and might just get one this month. If she gets approved and there is a machine available, the security deposit runs from $2,000 to up to $6,000 for a full-scale Lotto Centre.

A key-cutting service, cellphone cards, movie rentals, maybe stamps although a store not far away already sells them and Canada Post picks its spots based on postal code. If she buys 60 DVD movies, a company will throw in another 1,000 but she needs a $100 Film Exchange Retail Licence to rent them. Her cut from the ATM machine is half the $1.50 service fee; if she buys it for $2,500, her cut is 85 per cent.

"I tried bread but I had to eat it myself. Perishables are a waste of time – people go to Price Chopper."

She tours the shelves, rating each item. "Bathroom goods are well-demanded. The house materials are really working well."

She brought a Zippo lighter display cabinet up from the basement and added cigarette cases to the stock because customers asked for them. If she gets the lottery machine, if she gets the cell phone card business (a $1,500 down payment, then $14 a month), if she can buy the ATM machine, if she can rent DVDs, if she builds up enough loyal customers, she might make it.

The store opens at 9 a.m., closes at midnight. "Sometimes, it can be like a prison." Then she smiles. "I didn’t marry, I tried to. Now I like not answering to someone."

Her sister and two brothers, one with a master’s in engineering and another with a degree in economics, wanted her to move to Germany to reunite the family, but she prefers Canada. After a refugee camp in Sudan, she had gone to England for surgery on her leg, gnarled with polio. A United Church in Ottawa sponsored her as a refugee.

"It is amazing. I never thought that I would live in Canada. We studied it in geography in school – lots of snow! – and now I’ve become a Canadian. I feel at home here. Everyone is from far away."

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TOKYO– Sony Corp. is slashing 4 per cent of its worldwide workforce, reining in spending and shutting plants as it tries to ride out a looming worldwide recession that is battering Japan’s export-reliant manufacturers.

Tokyo-based Sony, which is cutting 8,000 of its 185,000 jobs, said yesterday it will shut five or six plants – about 10 per cent of its 57 factories.

Sony also plans to reduce its electronics investments by about one-third by the end of March 2010, although it did not give specific numbers. Sony will also cut at least 8,000 temporary jobs.

The job cuts are the most drastic here since the U compare car insurance prices.S. credit crunch hit over the summer.

Sony has been recovering from internal problems in recent years under cost-cutting reforms led by chief executive Howard Stringer.

Sony said the moves will deliver $1 billion (U.S.) in savings a year by March 2010.

As well, Sony will trim spending in semiconductors and will outsource output planned for image sensors for mobile phones.

Associated Press

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European services shrank at a record pace in November, increasing pressure on the European Central Bank to cut interest rates further this week.

Royal Bank of Scotland Group Plc’s services index dropped to 42.5 from 45.8 in October, remaining below the expansion- threshold of 50 for a sixth straight month. The final reading is the lowest in the survey’s 10-year history and falls short of an initial estimate of 43.3 published Nov. 21. Economists forecast a decline to 43.3, according to the median of 31 estimates in a Bloomberg survey. The index is based on a survey of purchasing managers by Markit Economics in London.

Europe’s economy fell into its first recession in 15 years in the third quarter after the worst financial crisis since the Great Depression pushed up borrowing costs, eroded confidence and hurt demand for exports. Slowing inflation is giving the ECB room to cut rates further as policy makers across the globe seek to limit the economic damage from the financial turmoil online payday loans.

“The extremely weak November service-sector purchasing managers’ survey exerts significant extra late pressure on the ECB to deliver a deep interest-rate cut on Thursday,” said Howard Archer, chief European economist at IHS Global Insight in London.

The ECB has cut its benchmark rate by 100 basis points, or a full percentage point, to 3.25 percent since early October and signaled more reductions are ahead. The central bank will probably cut its key rate by half a percentage point this week, a survey of economists shows. That would be the third reduction since early October.

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TD Bank Financial Group has reported fourth-quarter net income of $1.01 billion, down from $1.09 billion a year ago, but stressed Thursday it is still providing ample credit to Canadians.

TD said revenue was $3.64 billion in the three months ended Oct. 31, up from $3.55 billion a year earlier but down from $4.04 billion in the third quarter of this year.

Adjusted earnings fell to $665 million, compared with $1.02 billion a year ago.

Earnings per share were $1.22, down by 19 per cent from $1.50 a year ago, and EPS adjusted for one-time items slumped 44 per cent to 79 cents.

The quarterly results "reflected solid earnings contributions from TDBFG’s retail businesses in both Canada and the United States, while illiquid and volatile markets affected the performance of wholesale banking," the bank stated.

TD benefited from non-recurring items during the quarter, including a positive adjustment of $323 million after tax as the bank reversed much of reserves previously set aside for Enron litigation, a gain of $118 million on changes in fair values of hedging derivatives, and a $59-million gain on credit default swaps. These were partly offset by $126 million in amortization of intangibles and $25 million in restructuring and integration items.

Provision for credit losses more than doubled to $288 million from $139 million fast cash advance.

Full-year revenue was $14.67 billion, up from $14.28 billion, with reported net income of $3.83 billion, down from just under $4 billion.

Return on equity for the year fell to 14.4 per cent from 19.3 per cent.

"On the whole, we’re proud of what we’ve accomplished in 2008," stated TD chief executive Ed Clark.

"Our retail businesses are performing very well and, even though TD Securities had a tough year and a particularly tough fourth quarter, we’re pleased that its strategic positioning has protected our investors from the worst of the current turmoil."

Clark added: "As the economy slows, understandably there’s concern from governments and the public that banks may restrict credit. What’s clear from our reporting today is that TD continues to supply credit to its customers and clients."

He said TD’s personal and commercial lending in Canada has continued to grow at an accelerating rate through 2008, despite a general slowdown in credit expansion.

"While the lack of visibility on the economic environment calls for caution, we have a strategy and competitive position that will help us weather the storm," he added.

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Call them resigned or defeatist, but two leading risk managers are already sure of one lesson from the crisis ravaging the global financial system: in one way or another, it’s happened before and it’ll happen again.

“For at least 10 to 15 years, people will remember this very painful experience, take it to heart and balance risk versus return more realistically,” said John Rowe, London-based executive vice president for SunGard, a financial software maker.

“But I say to my younger colleagues: don’t assume this is the last one. If you’re young enough you’ll see the next one,” said Rowe, who used to oversee market risk at Bank of America.

Leaders of the Group of 20 developed and emerging economies have ordered financial supervisors to conduct a root-and-branch review of the shortcomings in regulation and oversight that spawned the credit crisis and still-deepening global slump.

Speaking on a recent visit to Beijing, Rowe saw no need for supervisors to become heavy-handed. But, he said, they should require banks to demonstrate they have the capacity to process their trades from start to finish and value them daily.

“And they should say ‘if you can’t show us, we’ll get real tough’,” he said. “It would slow the pace of innovation to some significant extent, but it wouldn’t completely handcuff the process.”

Even then, Rowe said the best pricing and risk management tools struggle to capture “tail risk” — statistically improbable confluences of events that have materialized with alarming frequency during the crisis, bringing many banks to their knees free credit report.

“People have been too inclined to put complete faith in the scientific certainty of the numbers that come out of all these complicated systems and abandon a certain amount of common sense.

“Part of the problem is not derivatives or risk systems. It’s human psychology at fault here. We’ve met the enemy and it’s us.”

BE HUMBLE

Nikolaus von Bomhard, the chief executive of Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz), the world’s largest reinsurer, thinks he may have already spotted the next market land mine: before long, the availability of too much cheap cash will once more cause risk to be underpriced.

The appetite for risk may have faded for now, but von Bomhard said he suspected this was just a fad.

“Excess liquidity will sooner or later become an issue again,” he said in an interview at the weekend.

“One or two years out, it will take a lot of discipline to take the liquidity out and not fall into the trap again of chasing yield and disregarding risk.”

As for the claims side of Munich Re’s business, von Bomhard agreed with Rowe that managing risk is as much about trying to understand human nature and technological change as it is about analyzing actuarial tables. 

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In a sign that the global credit crisis is seeping across Canada’s borders, Bank of Canada Governor Mark Carney warned yesterday that the country "has been importantly affected by global events" and hinted that another interest rate cut may be in the offing.

Pointing to "a tightening in credit conditions," Carney said in a speech to the Canada-United Kingdom Chamber of Commerce in London that "the risks to growth and inflation in Canada identified (in October) appear to have shifted to the downside."

Carney emphasized that Canada is weathering the storm better than most major economies.

But around the world, some economists and policy makers are now anxiously considering another worrisome prospect: A deflationary spiral that could make recovery even more difficult.

Those concerns were heightened yesterday by a report that showed U.S. consumer prices plummeted by 1 per cent in October (month-over-month), the biggest one-month decline since record-keeping started.

The drop was driven by a precipitous fall in oil prices, which have lost more than 60 per cent of their value since peaking in mid-July. But core consumer prices, which exclude food and energy, also fell by 0.1 per cent last month, showing broader price declines.

U.S. Federal Reserve vice-chairman Donald Kohn said yesterday that the risk of deflation "is still small in my mind … But it is also the case that whatever I thought that risk was, four or five months ago, I think it is bigger now even if it is still small."

For consumers, the prospect of deflation – an ongoing fall in the general level of prices – might seem appealing.

Under normal circumstances, lower prices are "supposed to signal to people (that) now might be a good time to buy, and that brings about an adjustment," said Gregor Smith, an economics professor at Queen’s University.

"It encourages people to spend, and that helps sales for those companies."

But a period of deflation carries the risk of "a deflation mentality, where people, if they can, postpone purchases because they expect that prices will fall," said Michael Gregory, a senior economist at BMO Capital Markets cash in one hour.

Businesses may follow suit by postponing building plants or buying new equipment in anticipation of lower prices, creating a pernicious cycle of decreasing demand, production cuts and layoffs that can cause demand to dip even further.

Such a spiral is "very hard to break," said Gregory, pointing to the Great Depression of the 1930s, and Japan’s 10-year spiral of falling prices and economic stagnation.

While rare, he added, "it’s a low probability of something really, really bad happening, which weighs in on your policy thinking."

Some officials have publicly mused about the possibility.

"Deflation is probably the worst case for the financial sector because it is very difficult to overcome. Therefore, all central banks are going to do everything to avoid it," European Central Bank policy maker Ewald Nowotny said earlier this month.

But Smith warned not to read too much into yesterday’s U.S. consumer price figures.

"Certainly, the credit crisis … is one of the causes of a fall in demand in the economy. And that in turn can show up in some falling prices," he said.

"Whether it will really show up in deflation is still an open question. I think it’s a bit early to say based on one month’s CPI numbers."

Canada’s consumer price index for October is scheduled to be released tomorrow .

In September, annual inflation stood at 3.4 per cent, just off August’s five-year high.

Minutes from the Federal Reserve’s October meeting, released yesterday, show that officials slashed economic growth forecasts for 2009, and some believed more interest rate cuts might become necessary.

At that session, the central bank cut its key interest rate by a half a percentage point to 1 per cent.

Its next scheduled interest-rate setting meeting is Dec. 16.

The Bank of Canada is to consider its overnight rate, which sits at 2.25 per cent, on Dec. 9.

With files from the Star’s wire services

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General Motors shook an already embattled auto industry Friday as it reported a huge quarterly loss that was much worse than expected and warned it is in danger of running out of cash in the coming months.

The nation’s largest automaker reported that it lost $4.2 billion, or $7.35 a share, excluding special items. That’s up from the loss $1.6 billion or $2.86 a share it reported a year earlier and was far worse than the forecast of analysts surveyed by earnings tracker Thomson Reuters, which had forecast a loss of $3.70 a share.

But the most shocking news came in its statements about its cash position. GM said it had burned through $6.9 billion during the quarter and warned that it "will approach the minimum amount necessary to operate its business" during the current quarter.

In addition, the company said that in the first half of next year its "estimated liquidity will fall significantly short" of what it needs to continue operating. It said the only thing that would save it would be a significant improvement in economic and automotive industry conditions, help from the federal government, better access to capital markets or some combination of those options.

The report was by far the most grim assessment by a company that has insisted it is not considering filing for bankruptcy court protection. While the release did not mention the threat of bankruptcy, the outlook appeared to raise the possibility of such a dramatic step.

In response to questions on a conference call after the report, CEO Rick Wagoner said he would not speculate on whether GM would need to file for bankruptcy protections.

"We’re convinced the consequences of bankruptcy would be dire and extend far beyond General Motors," Wagoner said. "We need to find a way to get through this and that’s our focus."

Shares of GM (GM, Fortune 500) fell 9% Friday to $4.36, a nearly 60-year low.

Industry experts said the incredibly weak October U.S. auto sales that GM and the rest of the industry reported Monday, coupled with Friday’s report, mean that bankruptcy for GM is a very real risk.

"I think we should be worried [about a bankruptcy] right now," said Robert Schulz, Standard & Poor’s senior auto credit analyst. "We were worried before and the relative level of worry is now heightened."

S&P cut GM’s credit rating deeper into junk bond status to a rating of CCC+ Friday afternoon, not far above the D rating that indicates default by a company.

Shelly Lombard, senior high yield analyst at Gimme Credit, an independent research firm, estimates that GM will need to get between $10 billion and $15 billion in federal assistance in order to avoid bankruptcy by 2010 and that the chance of bankruptcy without help is probably 80% to 90%.

"They didn’t want to speak the B word. It doesn’t sound like they have a lot of options if the government doesn’t step forward," she said, adding that aid for the auto industry that has already been approved by Congress amounted to "bringing a Band-Aid to a train wreck."

Both Schulz and Lombard also said that not even a federal bailout may be able to save either GM or Ford in the long-term considering the problems facing the industry.

"To the extent that they do receive some assistance, it’s more buying time rather than a fundamental solution," said Schulz.

Still, experts agreed Congress will need to take swift action to make any difference for the embattled industry.

"This is not something that can go on and be dealt with in the next year, it needs to be dealt with in the next few weeks," said Dave Cole, chairman of Michigan think-tank the Center for Automotive Research. "When your cash is gone, you’re gone."

One possible endgame scenario reported recently involved a corporate tie-up between GM and Chrysler. Wagoner, without mentioning Chrysler by name, said that GM had ended talks about a possible merger with a Detroit rival to concentrate on the cash crisis it now faces.

"While it’s fair to say we conclude this acquisition could have provided significant benefits, we’ve concluded at this particular time that it’s important we put 100% of our efforts on the immediate liquidity challenges," said Wagoner.

Chrysler issued a statement of its own after GM’s report. CEO Robert Nardelli didn’t comment about the merger talks but said Chrysler would keep looking at various options to end its ongoing losses cash advance loans.

"As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability," he said.

GM announced a series of steps Friday designed to help it improve its cash reserves by $5 billion. Those steps included cutting another 10% of salaried employment costs, on top of the 20% cut in those costs already planned. In addition to expected staffing reductions, those white collar workers will not get their typical incentive pay next year.

The company will also cut capital spending plans by $2.4 billion in 2009, pushing back development plans for some new models. But it warned that even those steps would not be enough unless conditions improve. It did not announce any plans for additional plant closings or hourly staff cuts in its statement, however.

The company is clearly pinning much of its hopes of weathering the current downturn on an industry bailout from Washington.

"The company has engaged in discussions with various U.S. federal government agencies and congressional leaders about the … the need for immediate government funding support given the economic and credit crisis and its impact on the industry, including consumers, dealers, suppliers and manufacturers," according to a company announcement.

Wagoner joined the chief executives of Ford Motor (F, Fortune 500), privately-held Chrysler LLC, as well as the president of the United Auto Workers union Thursday afternoon in meetings with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., to seek support for a wide-ranging bailout package. Both congressional leaders voiced support for additional help for the sector following their meetings.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers’ balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched on whether the government would allow the automakers to tap the $700 billion bailout of Wall Street firms and banks that was enacted last month. Treasury has so far rejected auto industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress to help automakers convert operations to make more fuel-efficient vehicles and meet the demands of car buyers and new federal rules.

But Wagoner said just doubling the money available under that program won’t solve the immediate cash crisis facing the industry. And for the first time, he put a dollar amount on the cash that automakers are looking for from the federal government right now.

"In the meeting yesterday we talked near-term liquidity support for the industry in the range of $25 billion," he said. "No one said yes or no to that number."

The company’s problems have been building for many years. It has not made money on its core North American auto operations since 2004, and since that time it has run up $72 billion in net losses, including this latest period.

The company did see a one-time $1.7 billion gain from a change in accounting for its obligation to pay for health care for retirees and their family. That allowed it to post a net loss of $2.5 billion, or $4.45 a share, an improvement from the net loss of $42.5 billion, or $75.12 a share a year ago when it was hit by huge special charges.

Much of the net losses in recent years have been due to non-cash charges, such as the ones a year ago. But even excluding those kinds of special charges, GM’s core auto operations in North America have lost nearly $18 billion over the course of the last 15 quarters.

GM’s announcement came on the same day that Ford Motor reported a $3 billion loss in the period, excluding special items. Even Japanese rival Toyota Motor (TM), which has a much better cash position coming into this crisis, announced Thursday that its third quarter earnings had plunged nearly 70%, as it slashed its full fiscal-year outlook by 50%. 

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Naysayers who predicted the U.S. dollar’s demise as the world reserve currency of choice have been silent of late given the greenback’s meteoric recovery in recent months.

Slammed over the last several years as U.S. government budget and trade deficits mounted, the greenback was seen ceding its status as the predominant currency to the euro.

Talk of nations reducing their dollar reserves in favor of the euro prompted talk the dollar would also lose favor as the medium of exchange for commodities.

However, the global financial crisis that has rocked markets worldwide has seen investors voting with their cash and buying U.S. dollars, indicating that reports of the greenback’s death as a reserve currency have been greatly exaggerated.

“Talk of the euro replacing the dollar is off the table,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. “The U.S. has the only economy in the world that supports a strong currency by policy and is an anchor for the global economy.”

The current credit freeze has its roots in the U.S. subprime mortgage market where overzealous lending in exotic debt products has led to a wave of homeowner loan defaults and problems with repackaged mortgage securities.

But the crisis went global when holders of those mortgage securities faced huge losses and became reluctant to take on additional risk through either lending themselves or buying more securities.

Investors then were quick to understand that the United States was the only nation with the political will to act quickly and the government and private sector infrastructure in place to implement policies http://paydayintime.com. The pockets of the U.S. tax payer to fund a bailout added to the allure of the U.S. currency.

“The United States continues to be the only entity sufficiently large and coordinated enough to deal with the multiple issues surrounding the credit crisis,” said Andrew B. Busch, global FX strategist BMO Capital Markets in Chicago. “It clearly is not over.”

The dollar’s value against major currencies had changed little in the first half of 2008, after a six year slide, but since mid-July when the magnitude of the credit crisis became apparent, the dollar has rebounded significantly.

The Intercontinental Exchange’s U.S. dollar index <.DXY has climbed 21.3 percent since that time, roughly corresponding to a 21.8 percent drop by the euro against the greenback.

The British pound has dropped 23 percent while the Australian dollar plunged 37.5 percent against the U.S. dollar.

Emerging market currencies have been particularly hard-hit as investors fled risk and repatriated funds either home or to the safety of the U.S. dollar.

Latin American-focused funds suffered their 20th straight week of outflows, EPFR Global data showed on Friday, losing a net $134.8 million to redemptions. Europe, Middle East and Africa funds had outflows of $189.1 million.

The U.S. dollar has gained 27 percent against the South African rand since mid-July and 21 percent against the Turkish lira. 

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OTTAWA–Canadian inflation came off the boil last month and began what is expected to be a long slide that could see falling prices – rather than rising – become the next economic conundrum facing the country.

Statistics Canada reported Friday that annual inflation cooled by 0.1 point to 3.4 per cent in September, just off August's five-year high.

In Toronto, the rate was unchanged at 3.7 per cent.

Gasoline continued to power the headline rate, while core inflation, excluding volatile food and fuel items, remained tame at 1.7 per cent, below the Bank of Canada's two per cent target.

The central bank has predicted a year-long slowing of the rise in the cost of living toward one per cent rate in mid-2009. And Bank of Nova Scotia economist Derek Holt believes Canada could experience deflation – a rare phenomenon of declining general price levels – next year.

"With credit channels around the world impaired and with incomes and wealth facing a further hit, that's not an environment where prices are going to go up for many categories," Holt explained.

"The problem comes if people and companies expect prices to drop, they start to postpone consumption because those prices will be cheaper later … so that only makes the downside risk facing the economy a self-filling prophecy."

There is little doubt that price increases will slow further, commented Douglas Porter of BMO Capital Markets.

He estimates gasoline prices are on track to fall more than 15 per cent in October, largely taking the steam out of the consumer price index.

"Inflation is rapidly becoming the least of policymakers' concerns," Porter said.

"While this report doesn't make it obvious, Canadian inflation is poised to soon recede meaningfully, even with the recent steep sell-off in the loonie."

Krishen Rangasamy, an economist with CIBC World Markets, said Bank of Canada governor Mark Carney will feel little restraint from cutting interest rates further on Dec. 9. The central bank has already slashed the cost of short-term money by three-quarters of a point this month to stimulate the economy.

About one-third of September's inflation rate was attributable to a 10-cent-a-litre spike in gasoline prices blamed on hurricane Ike hitting Gulf Coast refineries http://full-free-credit-report.com. That left gasoline 26.5 per cent more expensive than in September 2007, Statistics Canada said.

Excluding gasoline, prices would have risen only 2.2 per cent last month on an annual basis, Statistics Canada said.

While fuel costs now are easing with the dramatic decline in global oil prices, some inflationary pressures remain, the Statistics Canada data indicated.

The food index was up 5.6 per cent from a year earlier in September, accelerating from a 4.5 per cent August increase as prices for baked goods and cereal products ballooned 15.5 per cent year-over-year.

"Just as Canadians finally get to enjoy cheaper gasoline, they get slapped with higher food prices," CIBC's Rangasamy commented.

"After initially bucking global trends, Canada's food CPI has soared over the last six months, with an annualized increase of nearly 10 per cent over the period. With the loonie currently flying low, food imports will likely cost more over the coming months, countering for price declines on other consumer products."

Shelter costs also continued to increase in September, up 4.5 per cent, mostly as a result of higher mortgage interest costs. But Canadians saw the impact of the cooling housing market as homeowner replacement costs declined 1.8 per cent on falling house prices.

And while students paid four per cent more for tuition this year, there was some relief from continued price declines for computers, video equipment and other electronic items.

Canadians also found more bargains in car dealerships as the cost of buying or leasing a vehicle was down 9.3 per cent from a year ago, the largest drop since February 1956.

Meanwhile, prices for clothing and footwear slipped 1.3 per cent.

On a month-to-month basis, the all-items consumer price index rose a seasonally adjusted 0.2 per cent from August.

The cost of living varied considerably last month from one part of Canada to the other, with annualized price increases as low as 2.4 per cent in New Brunswick and as high as 5.5 per cent in Prince Edward Island.

Prices in Alberta, previously a hotbed of inflation, registered their smallest increase since December 2005, up 2.8 per cent from September 2007.

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