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Canadian Prime Minister Stephen Harper’s five-year plan to cut defense spending, foreign aid and government operations won’t be rejected by opposition lawmakers, putting the country on course to be the first in the Group of Seven to erase its deficit.

Finance Minister Jim Flaherty, 60, released a C$281 billion ($273 billion) budget yesterday that forecasts the shortfall narrowing to C$49.2 billion in the 2010-11 fiscal year, down from a record C$53.8 billion last year. The gap will narrow to C$1.8 billion for the 2014 budget as stimulus measures expire, revenue recovers and spending cuts are implemented.

Michael Ignatieff, leader of the main opposition Liberals, said his party won’t seek to defeat the government on the plan, securing passage for Harper, who is 10 seats short of a majority in the House of Commons. The two other opposition parties won’t back the budget, saying it doesn’t do enough to create jobs.

“We’ve had three or four elections in the last few years and I got told very clearly by Canadians last autumn, don’t do that again,” Ignatieff told reporters in Ottawa. “When Canadians can see a clear choice between cuts and freezes and gimmicks and an alternative that gets this economy going, really meets the challenges of jobs and growth, then maybe then we’ll have an election.”

Harper, 50, and Flaherty are seeking to preserve the country’s record of frugality — 11 straight surpluses until the global recession hit — at a time when government spending is needed to drive growth.

Recession Victims

While yesterday’s budget sticks to a two-year, C$47 billion stimulus plan that keeps the deficit at near record levels this year, the governing Conservatives also outlined a path to bring the country back to balance by 2016.

“This is a budget that has completely left behind the victims of the recession,” New Democratic Party leader Jack Layton said. “It’s not a budget that we can support.”

Tax measures to close loopholes, and cuts to aid, defense and departmental operating budgets, will save C$17.6 billion over five years.

“I don’t like running deficits,” Flaherty told reporters yesterday in Ottawa. “We had to run this deficit temporarily because of the most serious economic crisis since the 1930’s.” Flaherty also resisted pressure to extend a popular home renovation tax credit, and to provide new tax breaks for investors and manufacturers.

‘Expenditure Restraint’

Canada’s aversion to debt was forged in the mid-1990s amid rating downgrades, a falling currency and a national unity crisis. Canada lost its coveted “Aaa” rating from Moody’s Investors Service Inc. in 1994 on concern the country would have trouble repaying its debt, which at the time was the second highest among G-7 countries after Italy. It took seven years to win the rating back.

Last year’s deficit eliminated all of Canada’s debt reduction accumulated since Harper came to power in 2006. Flaherty’s 2009 budget increased spending as a share of output by 2.6 percentage points, the biggest one-year increase since at least 1961, according to finance department data.

“I like the focus on expenditure restraint. I think it makes sense,” Avery Shenfeld, chief economist at CIBC World Markets, said in an interview.

In addition to the spending cuts, Harper also is betting the global economy will emerge from last year’s recession at a swift rate, helping Canada to grow at an average 2.9 percent in the next three years. The government bases its economic outlook on a survey of private-sector forecasters including economists from Royal Bank of Canada and Canadian Imperial Bank of Commerce.

Aggressive Assumptions

“The biggest surprise is the return to balance budgets within a five- to six-year time horizon,” said Derek Holt, an economist with Bank of Nova Scotia in Toronto. “That’s based upon some aggressive assumptions. It’s also assuming they will be successful in cutting program expenditures.”

Harper hopes to cut C$2.5 billion from planned defense spending, according to the budget plan, after the country withdraws its military from Afghanistan in 2011. The government will also cap spending on international assistance at 2010 levels, scaling back initial plans to grow its aid package by 8 percent. The move will save C$4.5 billion by 2015.

“This is probably the smallest budget in terms of new spending in 10 years,” Flaherty said.

Harper also pledged to freeze department spending, which includes payroll and procurement, saving the government C$6.8 billion. Measures to eliminate some federal programs and close tax loopholes will save an additional C$3.8 billion.

As part of the changes, the government will crack down on income trusts that convert into corporations and use “aggressive schemes” to claim tax losses. Ensuring tax deductions on employee stock options aren’t claimed twice — by the worker and the company — will save C$1.7 billion. Cosmetic surgery will also no longer be eligible for a medical-expense tax credit, a move the government values at C$200 million over five years.

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Department of Transportation Secretary Ray LaHood said Wednesday that owners of Toyotas affected by the recall should bring their cars to a dealer.

"My advice is if you have one of these vehicles, if you have a doubt, take it to Toyota today," LaHood told reporters after a hearing on Capitol Hill.

Earlier, LaHood had told a House committee that Toyota owners should "stop driving" and bring affected cars back to the company. He later referred to that as a "misstatement."

The Transportation agency also released a statement advising owners "to contact their local dealerships to arrange for fixes as soon as possible."

"We appreciate Secretary LaHood’s clarification of his remarks today about Toyota’s recall for sticking accelerator pedals," Toyota said in a statement. "We want to make sure our customers understand that this situation is rare and generally does not occur suddenly."

The automaker said if Toyota owners notice a problem, they should contact their dealerships immediately. But if a car is not experiencing pedal issues, Toyota said it is confident the vehicle is safe to drive.

Toyota officials announced on Monday they had found a solution that involved reinforcing the pedal assembly with a part that is being rushed to dealerships.

The problem, however, is that drivers are not likely to get a quick fix. Toyota told dealers in a letter on Tuesday that "parts and technical instructions will begin arriving this week for you to begin initiating repairs."

The confusion has worried Toyota owners like Maria Ciresi, 75, of Smithtown, N.Y.

"I’m deadly afraid to use it," said Ciresi, referring to the new car she bought in November that has only 300 miles on it.

She said she contacted two of her local Toyota dealerships, but was told that they "don’t know when" they would be able to fix her car.

"You have to be notified first by mail," she said.

Ciresi said she contacted Toyota directly, and was told to "drive the car, and if anything happens, put it in neutral."

Meanwhile, Ciresi said she’s paying $190 a month for insurance and $263 a month on car payments for a vehicle she doesn’t dare use.

LaHood also acknowledged that the National Highway Traffic Safety Administration is investigating Toyotas not just for problems with gas pedals, but for problems with the electrical systems, as well.

"We will also be investigating the electronic components that are in these cars and if they’re not safe, we’ll have Toyota take a look at that," LaHood said.

He said that Toyota has been cooperative in the investigations.

Toyota has recalled millions of vehicles in recent weeks due to problems with sticking gas pedals that cause the vehicles to accelerate out of control and later halted the sale of the eight vehicles involved in the recall.

Correction: An earlier version of this story misidentified the model-make of a car. 

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Brazilian inflation will quicken above policy makers’ target this year, according to economists surveyed by the central bank.

Consumer prices, as measured by the benchmark IPCA index, will rise 4.6 percent this year, up from a week-earlier forecast of 4.5 percent, according to the median forecast in a Jan. 22 central bank survey published today. The bank targets inflation of 4.5 percent plus or minus 2 percentage points.

Traders expect the central bank to raise interest rates to at least 9 percent, up from a record low 8.75 percent, as early as March to keep inflation in check, according to Bloomberg estimates based on interest rate futures contracts. The benchmark lending rate will be pushed up to 11.25 percent by year-end, according to the central bank survey.

“March would be a good month to start raising rates and to send out a clear message — the central bank is watching inflation and is ready to increase rates as needed,” Carlos Eduardo de Freitas, a former central bank director, said in an interview from Rio de Janeiro guaranteed payday loans.

The annual inflation rate is likely to remain between 4 percent and 4.5 percent if policy makers start acting in March, said Freitas, who is a partner at OF Consultoria Economica, an economic research company in Brasilia.

“Should they wait until the last quarter of the year, consumer prices could rise more than 5 percent this year,” he said.

Economists in the bank’s weekly survey forecast that Latin America’s biggest economy will expand 5.3 percent this year, after contracting 0.26 percent in 2009.

The real gained 0.2 percent to 1.8210 per U.S. dollar at 11:18 a.m. New York time from 1.8247 on Jan. 22.

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The health care reform bill approved by the Senate on Thursday would do more than any proposal yet to reduce the deficit over time - by an estimated $132 billion over 10 years and by substantially more thereafter.

But reducing the deficit is not entirely synonymous with the oft-stated goal of health reform: reducing the growth rate in health care costs and expenditures - often referred to as "bending the cost curve."

That growth rate is what drives federal spending on Medicare and other federal health programs.

And it’s what budget experts say will pummel the federal budget in future years if nothing is done to change it.

So how would the Senate bill fare in bending the cost curve from the perspective of the federal budget? The short answer is the ever-unsatisfying "it depends."

The Congressional Budget Office estimates the bill could over time reduce the federal budget commitment to health care - that’s spending on programs like Medicare plus the amount of health-related federal tax breaks.

For instance, the CBO estimates that Medicare spending per beneficiary would grow by an average of 2% on an inflation-adjusted basis over the next two decades. That’s half the 4% annual growth rate that has marked the past two decades.

But that estimated reduction is highly dependent on a number of factors.

More than anything, it depends on whether this and future Congresses will do what the bill says … to the letter. The budget agency noted such stick-to-itiveness is rare when it comes to major legislation and said the bill includes measures that "might be difficult to sustain over a long period of time" - such as reduced pay increases for various Medicare service providers.

And reducing the federal budgetary commitment to health care also depends on how well the cost-bending provisions in the legislation work.

In addition to the Medicare savings called for in the bill, two other major provisions could help bend the cost curve, according to former CBO Director Donald Marron.

The first is the creation of an Independent Payment Advisory Board that would recommend ways to reduce Medicare’s spending growth beyond what the legislation calls for. The second is the establishment of an excise tax on very expensive health plans intended to encourage employers and their workers to become more consumer savvy in their health spending choices.

The CBO said in particular that the bill’s savings potential depends on whether the new Medicare board’s recommendations effectively control the growth rate in Medicare spending.

"We need real entitlement reform," said Douglas Holtz-Eakin, another former CBO director. He thinks the board could help make meaningful fixes, but he doubts that Congress will follow the board’s toughest recommendations payday loans for bad credit.

Savings could be jeopardized, further, if any cost-bending provision is weakened or eliminated when the Senate and House hammer out their differences early next year on what a final health reform bill should look like.

Lastly, how far the Senate bill bends the cost curve depends on the success of pilot programs in the legislation designed to make health care delivery more cost-efficient.

"They’re setting up a framework under which we can learn what bends the cost curve over time," said Josh Gordon, policy director at the Concord Coalition, a deficit watchdog group.

In the meantime, while the bill is projected to reduce the deficit in between 2010 and 2019, the federal budget commitment to health care will increase by an estimated $200 billion because of provisions in the bill that call for, among other things, the federal government to subsidize the purchase of insurance by many Americans.

Best-case scenario

CBO estimates are never flawless. The agency strives to offer middle-of-the-road readings, neither too optimistic nor too pessimistic. And they’re based on the language of legislation, not the political realities of Congress.

"I would say the risks [including the political ones] tend to lean towards everything costing more and saving less, but it isn’t out of the realm of possibility that the bill could save more than CBO suggests," Gordon said.

Assume for a moment, though, that the CBO analysis is dead-on. The agency estimates that the Senate bill could reduce federal budget deficits by between one-quarter percent and one-half percent of GDP in the decade after 2019.

That’s a step toward putting the federal budget on a more sustainable track. But it’s just a start.

"It’s a relatively modest contribution to reducing the long-term debt overhang," said Senate Budget Committee Chairman Kent Conrad, D-N.D., in an interview with C-SPAN.

Here’s what modest means. The so-called fiscal gap is estimated to be anywhere from 4% to 8% of GDP, Marron said. That’s a measure of how much spending would need to be permanently cut or taxes permanently raised if lawmakers were to put the federal budget on a more sustainable track long-term.

The Senate bill could move the needle by 0.5% of GDP in CBO’s best-case scenario.

While that doesn’t seem like a lot, it’s far from nothing, especially given how hard the goal of curbing health costs is. And it’s an indication of just how hard the fight will be next year when lawmakers are expected to consider proposals for how to address deficit reduction long-term. 

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Hawaii stocks were mixed Friday as Wall Street was up slightly following a jump in retail sales.

Hawaii stocks seeing gains:

• Hawaiian Holdings Inc. (Nasdaq: HA), parent company of Hawaiian Airlines, up 3.9 percent to $7.39.

• Bank of Hawaii Corp. (NYSE: BOH) up slightly to $45.57.

• Alexander & Baldwin (NYSE: ALEX) up slightly to $32.82.

• Territorial Bancorp (Nasdaq: TBNK), parent company of Territorial Savings Bank, was up slightly to $17.33.

• Cyanotech Corp. (Nasdaq: CYAN), was up 7.3 percent to $4.40.

• Maui Land & Pineapple (NYSE: MLP) up a bit to $5.85.

Hawaii stocks seeing declines:

• Hoku Scientific (Nasdaq: HOKU) was down 5 installment payday loans.3 percent at $2.47.

• Central Pacific Financial Corp. (NYSE: CPF) was down 1.6 percent to $1.16.

• Hawaiian Electric Industries (NYSE: HE), parent company of American Savings Bank and Hawaiian Electric Co., down slightly to $20.69.

• Barnwell Industries (Amex: BRN) was down slightly at $4.32.

The Dow Jones Industrial Average ended up 66 points at 10,472, the S&P 500 was up 4 points at 1,106 and the Nasdaq Composite Index closed down points at 2,190.

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Honolulu Mayor Mufi Hannemann announced Wednesday that the city has closed a section of Kapiolani Park frequented by homeless people.

The area, a grass strip between Kalakaua Avenue and the sidewalk, will be closed for “ongoing maintenance and beautification work,” according to Hannemann.

It was unclear how long the city would cordon off the grassy border along the street, but the homeless population in Kapiolani Park has been a growing concern for the past several years. Over the past month, dozens of homeless have set up tents and belongings on the grass strip in an effort to get around the city’s closure of the park.

Currently, portions of the park on the mountain side of Kalakaua are closed from midnight to 5 a.m., while portions of the park on the ocean side of Kalakaua are closed from 2 a.m. to 5 a.m.

Overnight camping is also not permitted in the park, but that hasn’t stopped a determined core of homeless who set up tents and move only when prodded by police.

“We are committed to keeping Kapiolani Park clean and safe for everyone,” Hannemann said in a news release.

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County assessors will mail 2009 personal property forms to business owners this month.

Oregon law requires all business owners — even owners of home-based businesses — to file a personal property tax return with their county assessor every year.

Business owners must complete and return them to their assessors by March 1, 2010. Tax owed on personal property is shown on property tax statements and is due Nov. 15, 2010.

Completed returns must include a detailed list of all business-related personal property, along with equipment purchase and lease dates, and original costs.

Personal property may include office furniture, personal computers, easily moved machinery, and even off-road vehicles and display cases if they are used in the business. It also includes leased equipment such as copiers and power washers.

The county assessor calculates the tax due each year based on the business owner’s personal property return. The assessor may cancel the tax if total personal property is valued under $15,000.

If you’re a business owner, you must file a return each year even if:

• You didn’t receive a tax return from the county in which your property is located;
• The assessor cancelled your tax in prior years;
• You sold or closed your business during the year; or
• You sold or disposed of your personal property.

“If a business owner doesn’t file, penalties range from 5 percent to 50 percent of the taxes due, depending on when they file returns from previous years,” said Syndi Gates, a department tax analyst.

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As I write this from real estate disaster-ridden but still-glorious Los Angeles, I read much speculation that the recession is over.

The stock market has rallied explosively. Foreign markets in both the developing world and the developed world have done spectacularly well. China is unbelievably up after an unimaginably gruesome crash.

Even the poor beaten-to-death REIT sector has gained dramatically lately. Credit is supposedly flowing to at least some sectors (barely mortgages and small business yet), and the big banks look incomparably more solid than we feared just a year ago. Retail is showing signs of life, and even home sales are up and prices look to have stabilized in many areas. Unemployment is still gruesome but it is always the last thing to improve.

So, now, beloved class, what can we say we have learned from this recession, its runup, and its aftermath, if we are in fact in the aftermath?

1. Economic forecasting is still an extremely difficult gambit and nowhere near a science. It is a lot more like astrology than mathematics. As the recession bore down on us, the great majority of economic seers said it was not going to happen or if it did happen, it would be mild.

In fact, the recession turned out to be long-lasting and severe. Not one person I know foresaw that the government would allow Lehman Brothers to fail and thus simply shoot investor, borrower, lender, consumer, and employer confidence in the head. As dismal as Henry Paulson appeared, no one dreamed he would be that foolish.

Perhaps more worrisome, as the recession ground on, the top dogs in economics said it would last indefinitely. Many truly big names said it would turn into a genuine Depression, with prolonged unemployment approaching depression-era levels of one in four or five workers. This now looks extremely unlikely.

Even the auto sector, consigned to the scrap heap not long ago, has rallied, although whether it has legs much beyond the incredible "cash for clunkers" boondoggle is still unresolved. Hardly any of this was foreseen by the powers that be. The realm of economic forecasting is still a murky, lawless place.

2. Financial market forecasting is even more troublesome than economic forecasting. Hardly anyone I am aware of got the recent stock market recovery right. No one saw a recovery of roughly 60% in broad indices in the span from early March to mid-November. To the contrary, even in the spring, I was getting e-mails from people "in the know" seeing a bottomless pit for the stock markets.

3. The amount of lying and deception by the financial sector of this country has been breathtaking. The banks lied about the risks they were taking on, about the amount of their exposure, about how well capitalized they were, and about their prospects for survival. Throughout the financial sector there was similar deceit.

The fact that so much fraud can go on with no one getting punished for it is terrifying to the investor. Major players in finance were playing a truly staggering game of deceit — selling pension funds CMOs while at the same time selling the same instruments or derivatives attached to them short. This is betrayal of trust on a scale that even I, as someone who looks at The Street with a gimlet eye, could scarcely have imagined.

4. The government has no special abilities to forecast or predict a darned thing. Alan Greenspan, former head of the Fed, a truly wonderful man and a smart economist, not only did not see the crash, but did not see the bubble preceding it. Not only did he not see it, he thought it was an economic impossibility.

Ben Bernanke, the current head of the Fed and a helpful man of immense goodwill, did not see the possibility of a housing bubble and a crash when he was chairman of the President’s Council of Economic Advisers. He also did not think the pre-retirees of this country were in any kind of serious trouble. This shows a genuine inability to see the obvious.

Once he got to be head of the Fed, he did not see the severity of the crisis. He especially did not see the disaster that would result from failure to rescue Lehman. This went beyond ordinary mistakes.

As to former Treasury Secretary Henry Paulson, let us say a prayer for people like us who have rulers as arrogant and incompetent as he was. As to the current Treasury Secretary, Timothy Geithner, he also failed to see the crisis coming and failed to see how vital it was to rescue Lehman. He has definitely gotten better on the job, but whether he works for the taxpayers or for Goldman Sachs (GS, Fortune 500) is extremely questionable in my little mind.

Lessons for the investor

There is much more that could be said about the lessons of the crash and the recession, but there are lessons to be learned about individual investor behavior that are critical, too.

One important one: liquidity in a very secure form is a beautiful thing. Those persons who had a lot of cash or Treasury bonds or otherwise insured savings had a much more restful and happier recession than others with almost all of their money tied up in stocks or real estate.

If I had only one lesson to offer investors, it would be to keep invested in both stocks and bonds and keep plenty of liquidity in good times and bad.

Secretary Geithner’s "stress tests" which reassured investors about banks, was a brilliant idea and has worked wonders. But the timing and efficacy of government bailouts is very much in doubt on any short-term basis, and brings up a final important lesson: It is up to the prudence and foresight of the ordinary investor to save the ordinary investor and his or her family. The government will not and cannot do it for you.

You must be diversified between different asset classes and you must maintain liquidity. And you have to assume that the worst can happen and plan accordingly, which means having not just a bare minimum but somewhat more. We have just had a scary episode and a close shave, and we do not know for sure that the nightmare is over.

Learn the lessons and act as if the worst could happen again at any time. It can and it will. Let us pray a recovery is happening — but let us also tighten our helmet straps.

And another little note … my much-missed father used to tell me with great approval Adam Smith’s famous quote regarding prophecies of doom for America, "there is a lot of ruin in a nation."

I was moved to recall this when I saw Warren Buffett’s optimistic read on the economy at a great ‘town hall" he gave with Bill Gates at Columbia recently. In answer to a query about the short-term future of the market, he waved aside "what’s going to happen tomorrow" and instead said, regarding America, something like, "If you have a good farm, with good crops and good soil and you know you’re going to have five droughts in the next fifty years, you don’t let it affect you that much."

I am paraphrasing here, because I saw it on CNBC while eating dinner, but perhaps Buffett’s meaning was, "Don’t sell America short." At least not for the long run.

Ben Stein is a lawyer, actor, writer, and economist, who also appears in commercials as a spokesman for various companies.  

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European oil trader Trafigura Beheer BV said on Thursday the worst of the credit crisis was over, but cautioned that the oil market was still grappling with severe oversupply and current prices were too high.

“As far as we can see, liquidity is back, and there’s a lot of appetite from existing banks and new banks. As they reposition their portfolios, commodities continue to feature quite highly on their agenda,” Trafigura’s Chief Financial Officer Pierre Lorinet told Reuters in an interview.

But he warned that given the ballooning stockpiles of oil products stored on ships, the current crude price of $80 a barrel was not justified cash advance today.

“The level today seems too high compared to the pure fundamentals. But it goes back to how oil is trading today, and oil is trading like a financial asset.”

The severe oversupply would keep the market’s contango structure in place “for a while,” he added.

(Reporting by Jennifer Tan; Editing by Ramthan Hussain)

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American Express Co said credit card spending increased in October from September in another sign that the worst of the financial crisis may have passed for the largest U.S. credit-card company, sending its shares up 1.5 percent to a 14-month high.

American Express card spending, adjusted for foreign exchange factors, was down just 1 percent in October compared with a year earlier, Chief Executive Kenneth Chenault said on Tuesday.

That showed improvement from a decline of a bit more than 5 percent in September and almost 10 percent in August.

“The trends in spending are encouraging, and there are signs that the recession may be approaching an end,” Chenault said at a financial services conference organized by Bank of America Merrill Lynch.

Spending volume rose in October to the highest level since last December. “We view this performance as positive,” Chenault said.

Chief Financial Officer Dan Henry in October said spending volumes had been stable since May and forecast spending could decline in the low single digits or be flat in the fourth quarter compared with a year earlier.

Total card spending fell 11 percent in the third quarter from a year earlier but showed an improvement against a 16 percent contraction in the second quarter low fee payday loans.

American Express was the fastest growing credit card company between 2003 and 2007 as it relaxed lending standards. But it paid a heavy price in the financial meltdown, and bad loans rose to record highs.

The company cut 11,000 jobs and reduced spending to save $2.5 billion, part of which it will invest now to grow. It also converted itself into a bank holding company to get access to government bailout funds, which it has repaid.

Analysts have said American Express, which relies on affluent and corporate customers more than its peers, is recovering faster from the recession as economic jitters ease.

American Express shares were up 59 cents, or 1.5 percent, to $39.64 in afternoon trading on the New York Stock Exchange, a 14-month high. The shares have more than doubled in price this year.

(Reporting by Juan Lagorio, Editing by Gerald E. McCormick and John Wallace)

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