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On the eve of President Barack Obama’s winter health-care summit, Rep. Paul Ryan is dining at Talay Thai, a no-frills restaurant with metal chairs and Formica tables. On this frigid evening, Ryan strolled coatless to Talay — "I’m from Wisconsin!" he says — from his cramped Capitol Hill office, where tonight, as on most nights, he’ll sleep on a cot.

Such frugality is fitting for a politician who, as he sips ice water, frets that America is "sleep-walking toward a debt crisis." Ryan tells me: "Within a few years a sale of government bonds will fail. The capital markets will go crazy, and the Fed and Treasury will run to Capitol Hill demanding a giant bailout. Adding Obamacare would make the crisis go deeper and arrive faster."

It isn’t unusual to hear such antispending rhetoric from Republicans these days. What makes Ryan a rarity is that he’s been preaching cerebral free-market ideas during his 11 years in Congress, despite getting little attention for his views.

Now the 40-year-old Janesville, Wis., native is emerging as the leading GOP voice on economic policy, thanks to his detailed blueprint for solving what both Democrats and Republicans agree is a perilous fiscal future. (How bad is America’s financial picture? The President’s budget for 2011 forecasts deficits running at more than $1 trillion, or an unsustainable 4.2% of GDP, in 2020 — and that assumes low unemployment and decent growth of the economy.)

Republicans aren’t the only ones suddenly taking notice of Ryan’s views on deficit reduction and government spending. During his now-famous appearance at the Republican congressional retreat in Baltimore earlier this year, the President singled out Ryan. "It was my 40th birthday, and I’m sitting at lunch with my 6-year-old son on my knee," marvels Ryan. "And the President starts talking about me. I was amazed!"

Obama noted that Ryan had "made a serious proposal" to rein in the deficit and then praised him for at least addressing entitlement spending. Following those apparently peaceful words, Democrats launched a withering assault over the next three days as budget director Peter Orszag, Democratic Congressional Campaign chairman Chris Van Hollen, and House Speaker Nancy Pelosi all pummeled Ryan for threatening the safety net for the elderly and providing tax breaks for the rich.

Ryan got his chance to confront the President at the health-care summit Feb. 25. Seated across from Obama, Ryan addressed him directly with a six-minute, numbers-laden, wonkish analysis of the Senate bill that contradicted the administration’s pledge that the plan wouldn’t add to the mountainous deficit.

Ryan correctly stated that the bill projects that Medicare will lower reimbursements to doctors by $371 billion over the next 10 years, yet Congress would cancel those cuts in a separate bill, all part of an attempt to mask the true size of future deficits through "gimmicks and smoke and mirrors." Obama steered the discussion away from Ryan’s numbers, and the White House hasn’t challenged his analysis.

Ryan’s deficit roadmap

What is the Ryan plan , and why is the Obama administration seemingly obsessed with it? Ryan calls his proposal, published in January, the Roadmap for America’s Future. It’s a remarkably comprehensive, daring manifesto that tackles every part of the budget on a presidential scale, from Social Security to tax policy to health-care reform.

The goal is to eliminate the deficit, and eventually all federal debt, without any crippling tax increases. Under Ryan’s plan, for example, federal spending would reach just 24% of GDP in 2035 and then fall, vs. the CBO’s projection of 34% and rising from there. Ryan would make the deficit disappear by mid-century.

Ryan, to be sure, voted for President George W. Bush’s tax cuts, which added to the U.S. deficit, but he blames the current mess on excessive spending, which he proposes to control.

But he’s not trying to gut all programs. He wants to maintain promised health-care and retirement benefits for those who require them — the sick and the poor, and not just for today’s needy but for future generations. But he would also lower future benefits for the middle class. He would index future Social Security benefits to wage growth for, say, a family earning $28,000, but limit increases to inflation for households that made over $149,000.

Ryan also wants to totally change the way the government aids most Americans. His plan would use vouchers and tax credits to allow families to buy their own Medicare plans, private health insurance, and retirement accounts. His view is that by directly handing middle-class taxpayers part of the money the government now spends on their benefits, they will demand bargains and better service. Ryan predicts that what the middle class will lose in guaranteed benefits they’ll more than recoup through robust economic growth and lower prices.

Regarding health care…

His prescription for health care is radical: Ryan would eliminate the exclusion allowing companies to lavish on employees tax-free benefits and give the tax breaks to the workers themselves through a rebate of $5,700 a family, or a check for that amount if they don’t pay taxes.

"The problem with both Medicare and private plans is the third-party-payer system," says Ryan. "Consumers, spending their own money, will drive down prices." Ryan proposes a classic flat-tax solution: Americans could choose between using today’s byzantine rules and a simplified, post-card model with two rates, 10% and 25%. Believe it or not, the simplified system would disallow mortgage and other deductions.

In February the Congressional Budget Office analyzed Ryan’s road map — and confirmed that it produced the falling deficits and balanced budgets that Ryan promises. "By proposing cuts in benefits, Paul Ryan is demonstrating the nature of the solution that must occur," former Fed chief Alan Greenspan told Fortune. "You can’t close the gap with tax increases alone, and if you try to do it, you slow growth and reduce future tax receipts."

Ryan’s fan base cuts across party lines. "We both want to inject competition into the marketplace," says Sen. Ron Wyden (D-Ore.), who is co-sponsoring another bill that would hand consumers tax breaks for health care they now get only from employers. "We need ideas and policy, not political points, and that’s what Paul is all about."

Despite some bipartisan support, Ryan’s ideas are a hard sell, politically speaking. The idea of indexing Social Security to inflation caused an angry backlash under President George W. Bush. On both Medicare and his health-care tax credit, Ryan would restrain expenditures by raising benefits for high earners and most of the middle class at a pace slower than the rate of medical inflation. As a result, Americans would be forced to spend more and more of their own dollars on insurance. Even though Ryan promises to leave today’s Medicare benefits in place for people 55 and older, his proposal is bound to raise the ire of the lobbies for senior citizens.

Ryan’s proposals contradict the Obama administration’s philosophy, which calls for the government to take on more responsibility for citizens’ well-being. Budget director Orszag conceded that Ryan "succeeds in addressing our long-term fiscal problem," but takes "a dramatically different approach in which more risk is unloaded onto individuals."

Ryan is a free-market adherent of the old school, who believes it is the government’s duty to invest maximum economic power in the hands of individuals. His own story is a primer in self-reliance. Ryan’s parents put the kids on an incentive system for allowances — if they got just one B on their report cards, their allowance was cut from $4 to $2, and a C meant no allowance at all. At 16, he discovered his father dead of a heart attack, and had to inform his mother and older siblings. His older brother Tobin, a private equity executive, says that one of Paul’s chores was brushing and braiding the hair of their grandmother, who suffered from Alzheimer’s.

Ryan, who majored in economics and political science at Miami University in Ohio, says his chief influences are still thinkers discovered in the soul-searching that followed his father’s death, including Ayn Rand, Milton Friedman, and Friedrich Hayek.

In Washington he pursues an almost ascetic work ethic. He studies budgets and spreadsheets until 11:30 p.m., then crashes on his cot or on a mattress at his sister-in-law’s home in Bethesda. He seldom travels to campaign for politicians in other states or to burnish his national image. Instead he grabs the first flight to Wisconsin after the last vote on Thursday or Friday to join his wife and three young children at home.

Back in Washington on Monday mornings, and during the week, he leads about a dozen congressmen, including former football player Heath Shuler (D-N.C.), through a workout called P90X, a punishing bipartisan series of pushups, pull-ups, karate, and yoga. "Paul said I should join the yoga routine, but I can’t put my body through those contortions!" jokes Wyden. Ryan is prescribing an equally punishing workout for America’s future. It isn’t pleasant, it isn’t easy, but it may be the regimen on the table. 

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After days of intense infighting, the Senate voted late Tuesday night to extend the deadline for the jobless to apply for extended unemployment benefits. Several hours later, President Obama signed the measure.

More than 200,000 people were set to stop receiving checks this week after lawmakers let the Feb. 28 deadline to apply for extended federal benefits lapse. Senators had been trying to pass a 30-day, short-term extension for the past week, but Sen. Jim Bunning, R-Ky., refused to go along.

Bunning, who wanted the $10 million measure paid for, agreed to end his filibuster after coming under intense pressure from both parties in recent days. The Senate then voted 78-19 to push back the deadline to apply for unemployment insurance until April 5 and the federal subsidy for Cobra health insurance until the end of March.

Federal unemployment benefits kick in after the basic, state-funded 26 weeks of coverage expire. During the downturn, Congress has approved up to an additional 73 weeks, which it funds. These federal benefit weeks are divided into tiers, and the jobless must apply each time they move into a new tier.

About 11.5 million people currently depend on jobless benefits.

The unemployed have been caught in a game of political football on Capitol Hill. Tensions have been high in the Senate since mid-February, when Senate Majority Leader Harry Reid, D-Nev., stripped down a version of an $85 billion bipartisan jobs bill offered by Sen free credit reports. Max Baucus, D-Mont., and Sen. Chuck Grassley, R-Iowa.

The measure passed Tuesday also prevents a 21% reduction in Medicare reimbursements for physicians from taking effect until month’s end and continues federal funding for highway, bridge and transit projects until March 28.

The federal Department of Transportation said Monday it was furloughing up to 2,000 workers and would stop paying hundreds of million of dollars worth of reimbursements to states to cover their infrastructure projects. With the extension bill now law, those employees should start returning to work.

It also extends a popular small business loan guarantee program through March 28 and appropriates an additional $60 million for it. As part of the Recovery Act, the program calls for the Small Business Administration has waived its fees and offered banks guarantees of up to 90% on the loans the agency backs.

The agreement comes a day after Democratic senators unveiled a $150 billion bill that pushes back the deadline to file for unemployment insurance until year-end and extends dozens of expiring corporate and personal tax credits.

This more expansive legislation would extend many expired tax provisions — including allowing teachers to deduct education expenses and providing businesses a research and development credit — that Republicans favor. 

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Billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011, predicting that’s how long it will take demand for homes to catch up with the supply.

“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote Feb. 27 in his annual letter to shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”

The worst housing decline since the Great Depression has left one in five U.S. mortgage holders owing more than their houses are worth. Record foreclosures last year flooded a real estate market already glutted with unsold property, causing new construction to fall to the lowest in at least 50 years. The fall in homebuilding is the only fix unless the U.S. decides to “blow up a lot of houses,” Buffett joked.

“People thought it was good news a few years back when housing starts — the supply side of the picture — were running about two million annually,” said Buffett, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire. “But household formations — the demand side — only amounted to about 1.2 million.”

Berkshire, which owns a real-estate brokerage, a business that constructs pre-fabricated houses and units that make products used in homebuilding, has suffered amid the slump. Profit at Clayton Homes, the pre-fab housing business, fell about 9 percent to $187 million before taxes, while earnings at carpet manufacturer Shaw Industries fell 30 percent.

“High-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover, he wrote.

‘Deeply Invested’

“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.

Buffett joked that curbing home construction was the best of three ways to reduce supply. The other two, he said, would be to explode homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.”

Buffett’s annual communications with shareholders have won him a following of professional money managers and the moniker “the Oracle of Omaha.” He’s written passages in past years that compare investing to baseball, derivatives to venereal disease, and Wall Street bankers to Pied Pipers. The letters have been compiled into a book for those who want to study his pronouncements.

Transformative

Buffett, 79, built Berkshire into a $198 billion company through investments in firms he believes have superior management and lasting competitive advantages. His deals transformed Berkshire from a failing textile mill into an enterprise that makes candy, produces power and sells flight time on private jets. The shares traded at about $15 when he took control in 1965; the Class A stock last closed at $119,800.

Still, he and Vice Chairman Charlie Munger passed up opportunities when they weren’t able to evaluate the future of a business, even in a compelling industry, he said. That strategy has allowed the company to perform better than the benchmark Standard & Poor’s 500 in every year when both Berkshire and the index have fallen.

Playing Defense

“In other words, our defense has been better than our offense,” Buffett wrote. Last year, he said, Berkshire should have made more purchases of corporate and municipal bonds because they were “ridiculously cheap” when compared with U quick payday loans.S. Treasuries.

“When it’s raining gold, reach for a bucket, not a thimble,” he said. Corporate bonds returned 26 percent in 2009, compared with negative 11 percent in 2008, according to data compiled by Bank of America Corp. Merrill Lynch. State and local government bonds yielded 14 percent last year, compared with negative 4 percent in 2008.

Berkshire did extend financing to companies including Goldman Sachs Group Inc., General Electric Co. and Dow Chemical Co. during the credit crisis as other investors were withholding funds. The private deals pay dividends and interest of $2.1 billion annually, Berkshire said in a filing disclosing 2009 results. Berkshire’s net income of $8.06 billion rose 61 percent from 2008.

‘Climate of Fear’

“We’ve put a lot of money to work during the chaos of the last two years,” Buffett wrote. “It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”

Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. He admitted this year to a “very expensive business fiasco” with his move to issue credit cards to policyholders at his company’s Geico Corp. auto-insurance subsidiary. Last year, he said the U.S. economy was “in shambles” after reckless lending caused the worst financial “freefall” he ever saw.

He chastised the media in the new letter for “terrible journalism” in seizing on that comment from the prior year without also reporting that he made no predictions about the direction of the stock market.

CEO Responsibility

Buffett said this year that the CEOs and boards of companies that failed during the credit crisis shouldn’t be allowed to pass blame to underlings. Boards should insist on CEOs taking full responsibility for the risk of collapse, he said. “If he’s incapable of handling that job, he should look for other employment,” Buffett wrote.

Shareholders weren’t responsible for the botched operations at some of the country’s largest financial institutions, Buffett said, “yet they have borne the burden with 90 percent or more” of their holdings wiped out in cases of failure.

Still, he said, using year-to-year stock prices to evaluate a company’s progress can be an “extraordinarily erratic” measure. Even a decade can fail to give the proper picture, as Microsoft Corp. CEO Steve Ballmer and GE’s Jeffrey Immelt found when they took over with their shares at “nosebleed” prices.

GE shares have dropped about 60 percent since Immelt took over in September 2001; Microsoft has fallen about 47 percent under Ballmer’s tenure. Berkshire shares have risen more than 160 percent in the past decade, compared with the 17 percent decline in the S&P 500. Buffett’s company joined that index last month when it completed the largest deal of his 40-year tenure, the $27 billion takeover of railroad Burlington Northern Santa Fe Corp.

‘We Sleep Well’

Berkshire had $30.6 billion in cash and so-called near cash like U.S. Treasuries as of Dec. 31, compared with $26.9 billion three months earlier, after Buffett sold stock to add to the company’s cash cushion in advance of the rail deal. Buffett used about $8 billion of that cash to help fund the acquisition.

“We pay a steep price to maintain our premier financial strength,” Buffett wrote. “The $20 billion-plus of cash- equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.”

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Hummer, the off-road vehicle that symbolized consumers’ obsession with power, finally hit an obstacle that it couldn’t overcome. General Motors Co. plans to shut down the iconic brand after Hummer’s sale to a Chinese heavy equipment maker collapsed Wednesday.

Sichuan Tengzhong Heavy Industrial Machines Co. pulled out of the deal to buy Hummer after it failed to get clearance from Chinese regulators within the proposed time frame for the sale.

Jim Lynch, owner of Lynch Hummer in Chesterfield, said he was disappointed but not surprised that the deal fell through.

"The longer it took, the less likely it seemed it was going to happen," he said.

GM said it will continue to honor existing Hummer warranties.

"GM will now work closely with Hummer employees, dealers and suppliers to wind down the business in an orderly and responsible manner," said John Smith, GM vice president of corporate planning and alliances.

Lynch’s dealership will remain in business after he sells the final 13 Hummers in his inventory. He will continue to service the vehicles under GM warranties and plans to expand his line of winches, roof racks and other equipment for off-road driving.

Lynch also plans to continue selling firearms, which he added to his product lineup last summer when sales of gas-gulping Hummers waned.

Lynch has sold Hummers for 15 years from locations in St. Louis and St. Charles counties. He opened his current location in 2005.

He might move again, depending on the level of sales of firearms and outdoor equipment.

"We may have to downsize to a smaller facility," Lynch said cash advance.

GM has been trying to sell the loss-making brand for the last year and signed a deal with Tengzhong in October. However, resistance from Chinese regulators, who have been putting the brakes on investment in the fast-growing Chinese auto industry, created difficulties from the start.

GM spokesman Nick Richards said the automaker would still hear last-minute bids for the brand.

"In the early phases of the wind-down, we’ll entertain offers and determine their viability, but that will have to happen in pretty short order," he said.

Hummer, which traces its origins to the Humvee military vehicle built by AM General LLC in South Bend, Ind., acquired a devoted following among SUV lovers who were drawn to the off-road ready vehicles.

But they drew scorn from environmentalists, and sales never recovered after gasoline prices spiked above $4 a gallon in the summer of 2008.

Sales peaked at 71,524 in 2006. But in December 2009, only 325 Hummers were sold, down 85 percent from the previous year, according to Autodata Corp.

Sticker prices start at more than $42,500 and run to about $63,000, according to data posted at the Hummer.com website.

The H3, the most fuel-efficient vehicle in Hummer’s lineup, averages about 16 mpg. The vehicles are built at GM’s factory in Shreveport, La.

The Associated Press contributed to this report.

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Lost amid government reports that China reduced its holdings of Treasuries by a record amount in December were data showing Japan increased its stake, a move that may signal U.S. yields are peaking.

Purchases by Fukoku Mutual Life Insurance Co., Mizuho Asset Management Co. and Daiwa SB Investments Ltd. helped push Japan’s holdings to $768.8 billion, an increase of $11.5 billion. U.S. government debt held by China fell $34.2 billion to $755.4 billion, Treasury Department figures showed Feb. 16.

Increased buying from a country that has lived through a decade of recessions and deflation indicates Treasuries are a relative bargain, with consumer prices in check and savings rates rising. Investors in Japan, where households have built up 1,400 trillion yen ($15 trillion) of financial assets, are attracted by U.S. yields that reached the highest since 2007 compared with Japanese government bonds.

“When the yield is high, people buy,” said Satoshi Okumoto, an investment manager in Tokyo for Fukoku, which oversees the equivalent of more than $60 billion. “The prospect for inflation is quite limited. Consumer demand is limited” in the U.S., he said.

The insurer bought as yields on 10-year Treasuries rose to 2.55 percentage points above those on similar-maturity Japanese bonds in December, the most in two years, he said. While the spread shrank to 2.46 percentage points today, it’s still about 40 basis points above the average in that period.

Japanese Demand

Demand from investors such as Mizuho Asset, Fukoku Mutual Life and Daiwa SB, which together oversee $118 billion, may help cap bond yields even as the biggest traders predict the U.S.’s ballooning supply of debt will drive rates to the highest since July 2008.

In a Bloomberg News survey at the end of 2009, Barclays Capital Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of the 18 primary dealers that trade directly with the Federal Reserve forecast the 10-year yield would rise to 4.14 percent in 2010, from 3.84 percent on Dec. 31.

“Employment is very fragile,” said Hiromasa Nakamura, a senior investor who helps oversee the equivalent of $21.1 billion in Tokyo at Mizuho, part of Japan’s second-largest bank by assets. “U.S. households will increase their savings. That’s negative for the economy and positive for bonds.”

Nakamura said the yield on the benchmark U.S. 10-year note will decline to 3 percent by June 30 from 3.80 percent today. Investors would earn 8 percent if Nakamura’s forecast is accurate, according to data compiled by Bloomberg.

U.S. Inflation

U.S. government reports show that the more than $8 trillion in monetary and fiscal stimulus has yet to spark inflation.

The Labor Department said on Feb. 19 that consumer prices rose 0.2 percent in January, and fell 0.1 percent when excluding food and energy. The core inflation rate rose 1.6 percent the past 12 months, below the average of 2.7 percent since the start of the 1990s.

While the economy expanded 5.7 percent in the fourth quarter, consumer borrowing declined in December for an 11th- straight month, the longest on record, according to a Fed report released Feb. 5. The Labor Department said the same day the economy lost almost a million more jobs in the 12 months ended in March 2009 than it had previously estimated.

‘Subdued’ Inflation

“Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the U.S. Federal Open Market Committee said after its last meeting on Jan. 27. “Inflation is likely to be subdued for some time.”

The U.S. savings rate has increased to 4.8 percent from 0.8 percent in 2005, according to government reports. Similar to Japan, U.S. banks are funneling that cash into bonds.

U.S. financial institutions increased their holdings of Treasuries and the debt of government-backed mortgage companies such as Fannie Mae in Washington and McLean, Virginia-based Freddie Mac to $1.43 trillion this month from $1.1 trillion at the end of 2007, Fed data show.

That may help offset lower demand from China, whose Treasury holdings peaked at $801.5 billion in May. The nation reduced the amount of Treasuries in its $2.4 trillion of currency reserves after expressing concern about U.S. borrowing to fund a growing budget deficit.

China ‘Worried’

That was two months after Premier Wen Jiabao said he was “worried” about the holdings and wanted assurances that the nation’s U.S. investments were safe. Central bank Governor Zhou Xiaochuan proposed a global currency to reduce reliance on the dollar.

China may have allowed holdings of short-term bills to mature in December and replaced them with a smaller amount of longer-term notes and bonds, Treasury Department data show.

Kokusai Global Sovereign Open, Asia’s biggest bond fund, is shunning Treasuries because of the outlook for the dollar, said Masataka Horii, one of the portfolio managers. The $43.5 billion fund holds 18.6 percent of its assets in dollar-denominated bonds, about the lowest level since it started in 1997, he said.

“Because of low inflation, the Fed will keep its policy rate at a record low,” he said. “The dollar will be weak.”

The Fed raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent on Feb. 18, pushing the greenback to a one-month high against the yen. Policy makers said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.

Dollar Fluctuations

The Fed will keep its target for overnight lending between banks, its main policy tool, near zero through 2010, Horii said.

Measured against a basket of currencies from the Group of 10 nations, weighted by how they trade against each other, the greenback is down about 16 percent from last year’s peak in March, according to Bloomberg Correlation-Weighted Currency Indexes. The index for the dollar rose 0.1 percent last week.

Relatively high U.S. yields may lure more of Japan’s savings, after the nation increased its holdings by $142.8 billion, or 23 percent, in 2009.

Financial Services Minister Shizuka Kamei said he is considering whether to invest funds from Japan Post Bank Co., the world’s largest holder of deposits, overseas. Japan Post had 195.7 trillion yen of assets as of Dec. 31, equivalent to $2.13 trillion, based on figures from the company’s Web site.

Room for Sales

Since Barack Obama became U.S. president in January 2009, Japan’s biggest bond investors have said he has room to increase debt sales without driving up borrowing costs as he tackles the worst economy since World War II.

One-month bill yields turned negative last month. Benchmark 10-year yields, while rising from their record low set in 2008, are still more than half a percentage point lower than the average over the past decade.

Obama increased the amount of U.S. marketable debt to $7.23 trillion last month from $5.75 trillion a year earlier. The budget deficit will swell to an unprecedented $1.6 trillion in the fiscal year ending Sept. 30, the Obama administration predicted Feb. 1.

Japan’s experience shows record debt sales don’t translate into higher bond yields as long as inflation is kept in check. Japan’s 10-year bond yield of 1.33 percent is the lowest of 31 nations tracked by Bloomberg.

Government debt in Japan is equivalent to $9.06 trillion, almost double the size of the nation’s annual gross domestic product. The U.S. debt is about half the size of its GDP.

Seeking ‘Safe Assets’

“Japan bonds lack appeal because yields are so low,” said Yuichi Onsen, chief strategist in Tokyo at T&D Asset Management, which oversees the equivalent of $18.5 billion and is a unit of Japan’s largest publicly traded life insurer. “There’s demand for U.S. bonds as safe assets.”

Treasuries are also drawing investors on concern that Greece will fail to reduce the European Union’s largest budget deficit, slowing growth, said Kei Katayama, leader of the foreign fixed-income group in Tokyo at Daiwa SB, part of Japan’s second-biggest brokerage. Greece’s budget crisis pushed the euro to a nine-month low on Feb. 19.

“U.S. assets may outperform European assets,” Katayama said. “Sovereign risk and falling confidence in the EU system are leading to a flight to quality.”

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Portland leaders want property owners citywide to kick in for the Portland-Milwaukie light-rail line construction.

In identifying funding sources for the $1.4 billion line, Portland will apply $1.78 million collected from citywide transportation system development charges. The money had already been earmarked for the project, according to the city’s finance office.

All told, the city must contribute $30 million to the project. Some $10 million worth of tax-increment financing money will be generated through the North Macadam Urban Renewal Area, through which the new line will travel. Another $15 million would come from transportation system development charges levied against property owners within the North Macadam and the Portland State University areas. Some $3.22 million would come via parking revenue.

Portland Mayor Sam Adams, on a Twitter post, characterized the plan as spending $30 million in order to help attract the rest of the funding from state and federal sources. The council discussed the matter at its Thursday meeting.

Adams said the project could create 12,300 jobs. Work on the project is scheduled to begin in summer 2011.

Light-rail supporters believe the 7.3-mile line could launch billions worth of development in the North Macadam area, Southeast Portland, Milwaukie and north Clackamas County.

The Portland City Council is considering the measure as it decides whether to authorize an intergovernmental grant agreement with TriMet. The agreement would spell out the city’s financial commitment to the project.

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The Leadership Louisville Center and Today’s Woman magazine will hold a series of breakfast forums, called 100 Wise Women, that are designed to grow Louisville’s network of women leaders.

The first event will be held Wednesday, March 10. It will feature keynote speaker Madeline Abramson, wife of Louisville Metro Mayor Jerry Abramson.

The dates and speakers for the other forums are:

• June 9: Laura Douglas, vice president, corporate responsibility and community affairs, E.ON U.S. LLC

• Sept. 8: Julie Hermann, executive senior associate athletic director, University of Louisville;

• And Nov. 10: Angela McCormick Bisig, judge, Jefferson County District Court Business Card Holders.

All events will be from 8 to 10 a.m. at the University Club, 2001 S. Brook St.

Cost is $25 for members of Leadership Louisville Center and $30 for nonmembers.

Proceeds from the events go toward the Joan Riehm Women’s Leadership Fund, a scholarship fund that was created to allow young women to participate in Leadership Louisville programs.

Since it was formed in 2007, 27 women have received scholarships totaling $37,500.

To register, visit www.leadershiplouisville.org/events or call (502) 561-5231.

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WASHINGTON — Federal Reserve Chairman Ben Bernanke on Wednesday unveiled his strategy to mop up the massive credit stimulus that the Fed has provided the U.S. economy during the last two years. But when this will happen remains in question.

The Fed’s aggressive provision of credit helped to prevent a cataclysmic economic meltdown. It purchased complex bonds backed by car loans, student loans, mortgages and commercial loans, and extended huge amounts of short-term credit to keep financial markets from freezing.

Next the Fed must unwind those massive holdings so they don’t overheat the recovering economy and fuel inflation. But at the same time, the Fed must shrink its balance sheet, which has swelled above $2 trillion, in a way that won’t cause the economy to stall.

Bernanke outlined his exit strategy in written testimony prepared for the House of Representatives Financial Services Committee. Washington’s second major snowstorm in less than a week forced the cancellation of the panel’s scheduled hearing.

"The economy continues to require the support of accommodative monetary policies. However, we have been working to ensure that we have the tools to reverse, at the appropriate time, the currently very high degree of monetary stimulus," Bernanke wrote. "We have full confidence that, when the time comes, we will be ready to do so."

The key phrase there is "when the time comes." Bernanke has signaled that he thinks that time is still a long way off, but big Wall Street investors and foreign buyers of U.S. debt, such as China and Japan, are demanding that the Fed explain how it plans to unwind its massive stimulus programs.

Investors fear that if the Fed doesn’t act, inflation could kick in, which would erode their assets and the purchasing power of ordinary Americans.

"What you worry about is we have a lot of reserves in the banking system. Ultimately they’ll get used and create a multiplier expansion in the money supply," said Vincent Reinhart, a former chief economist at the Fed’s rate-setting Open Market Committee.

Traditionally, the Fed controls economic growth through interest rates. If the economy starts to lag, the Fed can provide a boost by lowering the federal funds rate — what banks charge each other for overnight loans payday loans in 1 hour. That, in turn, influences the prime rate, which banks extend to their most creditworthy borrowers and is a reference point for all sorts of other lending. To slow economic growth, the Fed raises the federal funds rate.

But because the recession was so severe, the Fed took extraordinary actions, pumping billions of dollars into the economy by buying up bonds and even Treasury notes. In addition, the Fed issued low interest loans to banks to encourage more lending to businesses and consumers.

Now, as the economy stabilizes, the Fed must look for ways to soak up this excess. One way Bernanke said the Fed planned to do this is to raise the interest rate it will offer commercial banks to leave reserve funds parked in the Fed’s district banks.

"Paying interest on banks is a way to induce idle balances, shortcut the multiplier effect," said Reinhart, now a researcher at the American Enterprise Institute, a conservative policy organization.

The advantage of steering interest rates through the excess reserves rate gives the Fed more control over money floating around the financial system. The Fed sets that rate directly, while its federal funds rate is just a target. But a higher rate on banks’ excess reserves also would make it harder to borrow. Banks will be tempted to keep more money at the central bank, rather than lend it to individuals and businesses. But if the Fed tightens the credit market too aggressively, it could cause the economy to stall.

Bernanke on Wednesday, however, repeated the Fed’s pledge to hold interest rates at record lows for an "extended period." Economists think that means for at least six more months.

"The Fed is trying to show Wall Street and Congress ‘We’ve done our homework, and we have a strategy for getting back to normal,’" said Brian Bethune, economist at IHS Global Insight. "This is all designed to build confidence in the Fed’s exit strategy."

The Associated Press contributed to this report.

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Gas prices continued to decline last week, as the price of crude oil prices dropped to a seven-week low.

The national average price of a gallon of regular unleaded gasoline is $2.65 a gallon, down from $2.67 a week ago and $2.72 last month.

In Florida, the average price of a gallon of regular is $2.69, down from $2.72 last week. However, prices are still higher in South Florida, according to AAA Auto Club South.

Fort Lauderdale gas prices are averaging $2.74 this week, down from $2.76 a week ago. Prices in Miami average $2.76, down just a penny from last week. West Palm Beach also saw little change, with a gallon of regular selling for $2.78, down from $2.79 a week ago.

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Ameriprise Financial Inc. swung to a fourth-quarter profit of $237 million, or 90 cents a share. The financial services provider lost $369 million, or $1.69 cents a share, a year ago. Revenue rose 70% to $2.3 billion.

Ameristar Casinos posted a smaller fourth-quarter loss. It lost $63.3 million, or $1.10 per share, compared with a loss of $101.1 million, or $1.77, a year ago. Revenue dipped 1 percent to $291.3 million. Ameristar has a casino in St. Charles.

Black & Decker said fourth-quarter profit fell on expenses related to its acquisition by Stanley Works. Earnings slipped to $33.9 million, or 55 cents per share, compared with $43.7 million, or 72 cents, a year earlier. Sales dropped 6 percent to $1.3 billion.

Cisco Systems Inc. reported a jump in second-quarter profit that beat Wall Street’s estimates. The networking-gear giant reported a profit of $1.85 billion, or 32 cents a share, compared with $1.5 billion, or 26 cents, a year ago. Revenue was $9.8 billion.

Comcast Corp.’s fourth-quarter earnings rose. Earnings were $955 million, or 33 cents per share, up from $412 million, or 14 cents, a year ago. Revenue rose 2.9 percent to $9.06 billion.

Honda Motor Co.’s third-quarter profit soared sixfold on cost cuts and strong sales of green vehicles, boosting the Japanese automaker’s full-year forecast. Profit rose to $1.49 billion. But revenue slipped to $24.8 billion.

MEMC Electronic Materials Inc., the O’Fallon, Mo.-based maker of silicon wafers, posted a fourth-quarter loss on lower demand for renewable energy components and costs to expand into development. The loss was $7.1 million, or 3 cents a share, compared with net income of $70.3 million, or 31 cents, a year ago. Sales fell 16 percent to $356.7 million.

Town and Country-based Savvis Inc. reported a widening fourth-quarter loss. The firm, which recently announced the departure of CEO Phil Koen, reported a loss of $5.4 million, or 10 cents a share, compared with a loss of $300,000, or 1 cent, in the same quarter of 2008. Fourth-quarter revenue declined 1 percent to $219.8 million. For the full year, the company reported a slight improvement, posting a loss of $20.8 million, or 39 cents a share, compared with a loss of $22 million, or 41 cents, in 2008. Savvis also reported a 2 percent increase in full-year revenue — $874.4 million in 2009 versus $857 million in 2008. (Tim Barker)

Time Warner Inc. said improving results at its movie studio and cable networks boosted fourth-quarter revenue. It earned $627 million, or 53 cents per share, compared with a loss of $16 billion, or $13.41, a year ago. Revenue rose 2 percent to $7.32 billion.

Visa Inc. said its profit rose 33 percent in the fiscal first quarter. The payment processing giant reported net income of $763 million, or $1.02 per share, compared with $574 million, or 74 cents, a year ago. Revenue climbed 13 percent to $1.96 billion.

Young Innovations Inc., an Earth City-based dental equipment supplier, said fourth-quarter earnings rose to $3.5 million, or 44 cents per share, compared with $3.1 million, or 40 cents, a year ago. Revenue rose 2.5 percent, to $24.5 million. Healthy demand for consumable products — including preventive, infection control, endodontic and home care lines — led to increased fourth-quarter sales, the company said. Sales of diagnostic products declined from the prior-year quarter but at a slower rate than the last few quarters. For the year, earnings increased 11 percent, to $13.5 million, compared with $12.2 million in 2008. Revenue fell 1.4 percent to $97.7 million. (Tim Bryant)

Riding strong overseas growth, especially in China, restaurant operator Yum Brands Inc. posted a 6 percent gain in fourth-quarter profit. The company, which owns the Taco Bell, KFC and Pizza Hut chains, earned $216 million, or 45 cents per share, up from $204 million, or 43 cents, a year ago. Revenue fell 1 percent to $3.37 billion.

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