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Confused about whether lawmakers will extend the $8,000 first-time homebuyer credit and what it would look like?

That’s understandable, since the situation is still very fluid.

Here’s where things stand.

Support for the credit: There is still bipartisan support in Congress for extending the credit past Nov. 30 and making it available to more homebuyers.

The Obama administration wants the credit extended for a "limited period," Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said Thursday. They did not elaborate.

What’s on the table now: There appears to be a compromise deal that falls between the most and least generous proposals that have been put forth so far.

"There is bipartisan compromise to extend the credit through spring and expand it to existing homeowners who are stepping up to a different home," financial policy analyst Jaret Seiberg wrote in a research note for Concept Capital’s Research Group.

The latest idea under discussion is a credit worth up to $8,000 for first-time homebuyers and up to $6,500 for homeowners looking to trade up to a bigger primary residence and who have already lived in their current home for five years. (CNN: Senate compromise may be in the works.)

To qualify for the full credit, however, homebuyers must have adjusted gross income of less than $125,000 ($225,000 for married couples filing jointly).

In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.

Rationale for extending the credit: Supporters of the credit say it has helped to boost existing home sales in recent months. Extending the credit would help further support sales, stabilize housing prices and generate jobs in the face of an expected rise in foreclosures next year, which is expected to put downward pressure on prices.

If the credit is allowed to expire, they say, the housing market and the broader economy will grow moribund again.

"The most fundamental argument for the credit is that nothing works in the economy if housing is falling — it hurts household wealth and credit becomes tight," said Mark Zandi, chief economist at Moody’s Economy payday advance loans.com. "[The credit] is a good insurance policy. It’s vital to stem the housing price declines."

What critics say: Though extending the credit has bipartisan support, it is not without its critics.

Critics, while acknowledging that the credit has helped to generate additional home sales, say it has been poorly targeted and therefore not cost-effective.

They point to estimates that only 10% to 20% of the nearly 2 million homebuyers who will have gotten the credit by Nov. 30 bought solely because of the tax break.

In other words, a large majority of homebuyers who benefited from the credit would have bought their homes without it.

By one economist’s estimate, the government may have spent $43,000 for each sale that occurred strictly because of the credit.

In a position paper published this week, the liberal Center on Budget and Policy Priorities said making the credit available to existing homeowners would not help stabilize housing prices or reduce inventory.

"When [they] purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market."

Timing on a vote: An amendment to extend and expand the credit could be attached to a bill that would extend unemployment benefits and which could pass the Senate by next week.

However, there’s a chance the housing credit will be dealt with separately.

The credit could be attached to another piece of legislation or put in a standalone bill with other proposals to extend tax breaks.

Do you have a job because of the $787 billion stimulus package? We want to hear from people whose jobs have been created or saved by the American Recovery and Reinvestment Act. Please e-mail your stories to CNNMoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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Bank of England Governor Mervyn King opened a rift with Prime Minister Gordon Brown’s government by signaling the biggest banks could be broken up to prevent taxpayers having to shoulder the cost of future bailouts.

King’s suggestion to separate investment banks from operations that take deposits from consumers and manage payment systems was ruled out by Chancellor of the Exchequer Alistair Darling as recently as yesterday.

“It’s clear King’s not happy with where we are now,” said Colin Ellis, an economist at Daiwa Securities SMBC and a former central bank official. “He said the regulatory structure was inadequate, and coming from the governor of the Bank of England that’s as damming as it could be. He’s saying something and advocating something the Treasury has decided not to do.”

It’s the second time in seven months that King has broken ranks with the government and sought to publicly discuss the direction of policy. King in March said Brown needed to tackle the budget deficit with greater urgency, a policy that has since become the centerpiece of the Conservative opposition’s agenda.

The Conservatives, who lead in U.K. opinion polls less than a year before the next election, embraced King’s remarks without saying how they’d rein in banks that are too big to fail. They have pledged to move financial regulation powers from the Financial Services Authority to the Bank of England if they win power and form the next government.

King ‘Persuasive’

“His analysis of how the government’s system for regulating banks failed and how there has been ‘little real reform’ since is one I share,” said George Osborne, the opposition lawmaker who speaks on finance, adding that King was “powerful and persuasive.”

King’s comments were meant to catalyze a debate within the Group of 20 nations about how to rein in banks that triggered the credit crisis, resulting in $2.4 trillion of credit losses and writedowns in the U.S., U.K. and Europe.

Britain’s four biggest banks — Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc, HBSC Holdings Plc and Barclays Plc — have the most at stake. Their lobby group is resisting talk about dividing the industry.

“The key issue is not one of breaking up banks but of financing the economy,” Angela Knight, chief executive officer of the British Bankers’ Association, said in an e-mail. “Big businesses may want big banks which offer a range of products and services while individuals may look to something smaller. Large universal banks are the way forward.”

G-20 Talks

The G-20, whose finance chiefs meet in two weeks for talks in Darling’s native Scotland, is focusing on pushing banks to raise capital and restrain pay rather than devising an international approach to curbing the size of banks. Darling is writing laws to make banks write a “living will” that enables a quick wind-down of institutions that fail.

“We’ve got to make sure that whatever we do, we do it that looks after the taxpayer interest here, that we have a strong and stable banking system, but also that action is taken in other parts of the world,” Darling said in response to a question on the issue after a speech in London today payday loans no fax.

Former Federal Reserve Chairman Paul Volcker and Nobel laureate Joseph Stiglitz are among those urging governments to curtail the size of banks or risk future crises. Barclays Chairman Marcus Agius told the Financial Times that restraining the banks would drive up credit costs and hurt the recovery.

‘Capital Will Walk’

“If the banks are overregulated and returns are regulated out then the capital will walk,” said Mike Trippitt, a London- based banking analyst at Oriel Securities Ltd. The ongoing debate over regulations are “muddying the water in terms of the investment decision,” he said.

King said yesterday that, while global efforts to bail out banks had prevented economic disaster, they had created “possibly the biggest moral hazard in history.” He said that it is “hard to see why” proposals such as those made by Volcker to separate proprietary trading from retail banking are “impractical.”

“What does seem impractical are the current arrangements,” King said. “Anyone who proposed giving government guarantees to retail depositors and other creditors and then suggested that such funding could be used to finance highly risky and speculative activities would be thought rather unworldly. But that is where we are now.”

Government Position

Brown, Darling and other ministers have repeatedly said such a split would have failed to prevent the collapse of Lehman Brothers Holdings Inc. or Northern Rock Plc.

“The difference between having a retail and investment bank is not the cause of the problem, the cause of the problem is that banking has not been sufficiently regulated,” Brown told lawmakers in London today.

“You regulate according to risk,” Darling said yesterday before King’s speech. “The greater the risk, the greater the capital requirement. I don’t think an arbitrary split would deal with the problem.”

Treasury Minister Paul Myners today dismissed suggestions of a rift with the central bank, saying legislation mapped out in July already makes provision for altering an institution’s structure to split its deposits from its investing operations.

“The governor and the government are in agreement,” Myners told BBC Television today.

Simon Lewis, a spokesman for Brown, said: “The governor of the Bank of England set out some interesting thoughts. That is fine. The most important thing is that we move forward so that we are protected for failures in the banking system.”

King’s comments carry additional weight because the Treasury is beefing up the Bank of England’s role in overseeing stability of the economy.

“The governor made the point in his speech last night that there are no simple answers to how you deal with banks that are large and complex,” Darling said today. “You cannot have a regulatory regime that excludes the risk of failure.”

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Treasury Secretary Timothy Geithner said the U.S. must reduce its record budget deficit as soon as the economy returns to a sustainable growth rate without relying on government assistance.

“Americans understand that we have to go back to living within our means as a country,” he said in an interview broadcast today on CNBC. “When we have an economy that’s growing again and we get unemployment down, we’re going to have to bring those deficits down.”

The U.S.’s 2009 budget gap widened to $1.42 trillion as the deepest recession since the 1930s crippled tax revenue and the administration increased spending to rescue the economy. The shortfall for the 12 months ended Sept. 30 was more than triple the $455 billion record set a year earlier, the Treasury Department said today in Washington.

Geithner cautioned that a lack of confidence that the U.S. will return to fiscal sustainability may lead to a weaker economic recovery, higher interest rates and constrained investment.

“That’s why deficits matter. That’s why deficits in the end can be very damaging to growth,” he said. “That’s why you cannot live with future deficits as large as ours are likely to be.”

The Treasury chief said he hasn’t decided yet whether to extend the $700 billion Troubled Asset Relief Program, adding that it’ll be important to businesses and the housing market that the government has the ability to “continue to put in place programs to help make sure they get credit.”

Asked whether tax cuts enacted during the Bush administration should be allowed to expire next year, he said, “it does not make sense to raise taxes in a recession” and that “getting growth on track led by the private sector is still our most important priority.”

Geithner also said he sees a “good case” for Congress to pass legislation extending unemployment benefits.

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U.S. job losses unexpectedly accelerated last month and the unemployment rate reached the highest level since 1983, signaling any recovery in consumer spending and economic growth will be slow to develop.

The Labor Department figures prompted President Barack Obama to say he’s working to “explore any and all additional measures” to spur growth, and underscored forecasts for the Federal Reserve to keep its benchmark interest rate near zero through next year.

“This has the potential to put a big stop sign on the road to economic recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The harder jobs are to get, the harder and longer this road to recovery is going to be.”

Payrolls dropped by 263,000 in September, exceeding the median forecast in Bloomberg’s survey, with losses extending from cash-strapped state and local governments to retailers to builders, yesterday’s report showed. The jobless rate rose to 9.8 percent from 9.7 percent in August, while working hours matched a record low.

The Standard & Poor’s 500 Index closed down 0.5 percent at 1,025.21 in New York trading, losing 1.8 percent for the week. Ten-year Treasury yields rose to 3.22 percent late yesterday from 3.18 percent the prior day. The dollar sank 0.2 percent to 1.4576 per euro at 5:30 p.m. New York time.

Orders Fall

Obama called yesterday’s report a “sobering reminder that progress comes in fits and starts” in remarks at the White House after returning from Copenhagen, where he made an unsuccessful bid for Chicago to host the 2016 Olympic Games.

A Commerce Department report yesterday showed orders placed with factories fell unexpectedly in August, restrained by declines in demand for commercial aircraft and construction machinery. Bookings fell 0.8 percent after a revised 1.4 percent increase in July. Excluding transportation equipment, orders rose 0.4 percent.

Fed Chairman Ben S. Bernanke this week said economic growth may not be strong enough to “substantially” bring down unemployment, indicating the central bank will be slow to drain the trillions of dollars it’s pumped into the economy. UAL Corp. is among companies cutting jobs on concern spending will fade as government stimulus wanes.

Fed Bank of Boston President Eric Rosengren said the central bank and government should maintain policies to support economic growth and bring down unemployment until a self- sustaining recovery is assured.

‘Elevated Unemployment’

“I’d like policy to try to stimulate the labor markets as much as possible,” Rosengren said in response to questions following a speech in Boston yesterday no teletrack payday loan. “But the reality is even with stimulated labor markets, we’re likely to see elevated unemployment for the next couple of years.”

September’s figures brought total jobs lost since the recession began in December 2007 to 7.2 million, the biggest decline since the Great Depression.

Payrolls were expected to drop 175,000, the median of 84 estimates in a Bloomberg News survey of economists. Job losses peaked at 741,000 in January, the most since 1949.

The bigger-than-forecast decline in September and the jump in the jobless rate are “disappointing,” Christina Romer, Obama’s chief economist, said yesterday in a Bloomberg Television interview. Even so, Romer said the administration was focusing on the overall trend of slowing job losses, which showed “we’re moving in a good direction.”

Yesterday’s report showed factory payrolls fell 51,000 after decreasing 66,000 in the prior month. The decline included a drop of 3,500 jobs in auto manufacturing and parts industries.

GM, Saturn

General Motors Co. this week said it would close the Saturn brand after Penske Automotive Group Inc. broke off discussions to buy the unit. Saturn dealers will have until October 2010 to wind down operations. The Detroit-based automaker said in June a Saturn sale would have saved 13,000 jobs and 350 dealerships.

GM had called back some workers after the government’s “cash-for-clunkers” plan cut further into inventories already diminished during the bankruptcy shutdown.

Payrolls at builders dropped 64,000 after decreasing 60,000. Financial firms decreased payrolls by 10,000, after a 25,000 decline the prior month.

Broad-Based Losses

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 147,000 workers after falling 69,000. Retail payrolls declined by 38,500. Government payrolls decreased by 53,000.

Economists surveyed by Bloomberg last month projected the jobless rate will reach 10 percent by late 2009 and average 9.7 percent for all of next year even as the economy expands at an average 2.6 percent pace in the second half of this year and 2.4 percent in 2010.

Yesterday’s report also showed companies cut working hours, pushing weekly earnings lower.

The average work week shrank to 33 hours in September, matching a record low, while average weekly earnings fell to $616.11.

Workers’ average hourly earnings were 2.5 percent higher than September 2008, the smallest gain since 2005.

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European confidence in the economic outlook increased to the highest in 12 months in September as the economy showed signs of rebounding from the worst recession in more than six decades.

An index of executive and consumer sentiment in the 16- nation euro region rose to 82.8, the highest since September 2008, from 80.8 in August, the European Commission in Brussels said today. That was the sixth straight monthly gain. Economists had projected an increase to 82.7, a Bloomberg survey showed.

European companies including Germany’s ThyssenKrupp AG and Paris-based L’Oreal SA have beaten analysts’ earnings estimates, suggesting government stimulus programs are feeding into the economy. Manufacturing and service industries expanded for a second month in September and German business confidence climbed to a 12-month high. Rising unemployment may prompt consumers to rein in spending, curbing the recovery.

“The figures show that we can expect a further recovery with quarterly growth rates of 0.5 percent in the third and fourth quarters,” said Juergen Michels, chief euro-region economist at Citigroup in London. “However, it will take a long time until the loss of economic activity during the crisis is compensated.”

The world economy is emerging from the deepest slump since the 1930s following $2 trillion of government spending, tax breaks and infrastructure projects. The European Central Bank earlier this month kept its key interest rate at a record low of 1 percent, with ECB President Jean-Claude Trichet saying the economy is past the worst and will show a “gradual recovery.”

Current Quarter

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.

Ryanair Holdings Plc Chief Executive Officer Michael O’Leary said on Sept. 24 that he anticipates earnings will rise “significantly” this year. Dublin-based Ryanair, Europe’s largest low-cost airline, is cutting the “cost base and gearing the company up for a period of renewed growth over the coming years,” O’Leary said.

“We do see light at the end of the tunnel; there are more and more signs that the economy is improving,” HeidelbergCement AG Chief Executive Officer Bernd Scheifele said in an interview on Sept. 22. Germany’s biggest cement supplier will benefit “noticeably” from the government’s stimulus programs, he said.

DAX Index

The Dow Jones Stoxx 600 Index has risen 20 percent this year while Germany’s benchmark DAX Index has jumped 8 percent in the past two months, bringing gains to 17 percent in 2009.

L’Oreal, the world’s largest cosmetics maker, on Aug. 28 posted a smaller-than-projected earnings decline and forecast a gradual recovery through the second half of 2009. ThyssenKrupp, Germany’s biggest steelmaker, last month posted a smaller-than- forecast third-quarter loss.

“The recent jump in economic expectations exceeds our own projections,” ThyssenKrupp Chief Executive Officer Ekkehard Schulz said on Sept. 4 in Dusseldorf. “We’re seeing the first signs of bottoming out and rising orders in the steel area.”

European companies are starting to ramp up output to meet reviving global demand. European industrial orders rose for a second month in July, led by durable consumer goods, and exports increased 4.1 percent from June. The euro-area services industry index showed a return to expansion in September.

Jobless Rate

ECB policy makers including Trichet have warned the recovery may face obstacles such as rising unemployment. European retail sales fell for a 16th month in September, Markit Economics said today, citing a survey of more than 1,000 executives. Europe’s jobless rate probably rose to 9.6 percent in August, according to a Bloomberg survey. That would be a 10- year high. The European Union’s statistics office in Luxembourg will release the report on Oct. 1.

The commission noted in today’s report that the September increase in sentiment was “the smallest since the upturn started in April.” The August index reading was revised to 80.8 from the 80.6 reported on Aug. 28.

European households anticipate prices will decline more, today’s report showed. A gauge of consumers’ price expectations over the next 12 months held near a record low, rising to minus 14 in September from minus 16 in August, which was the lowest since the data were first compiled in 1990.

Consumer Prices

The ECB said earlier this month that it projects euro- region consumer prices will rise about 0.4 percent this year and around 1 percent in 2010. In September, consumer prices probably dropped 0.2 percent from a year ago, a Bloomberg survey shows. The ECB aims to keep inflation just below 2 percent.

With companies still cutting costs and the economy struggling to gather steam, ECB officials have signaled they are ready to maintain the bank’s unconventional measures for a while. The ECB has offered banks unlimited cash over 12 months and purchased covered bonds to encourage lending.

“The ECB won’t be in any rush over the next six months, but we see a rate hike towards the end of 2010,” said Laurent Bilke, a senior economist at Nomura in London. “They probably have the tools to negotiate a gradual exit.”

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President Barack Obama and fellow Group of 20 leaders are trying to end what Obama adviser Lawrence Summers has called the “financial balance of terror.”

World leaders, meeting in Pittsburgh last week, adopted a framework for more durable economic growth as they sought to prevent a replay of the worst crisis since the Great Depression. They also acknowledged the growing clout of China and other emerging economies by giving them a bigger voice in decision- making.

The aim is to reduce U.S. dependence on overseas capital to finance consumption, while cutting the reliance of China and other creditor nations on American consumers to buy their goods. Summers, head of Obama’s National Economic Council, has singled out the current arrangement as a risk to prosperity since it leaves each major economy a hostage of the other’s policies.    “Because our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs and industries,” Obama told reporters in Pittsburgh Sept. 25 after hosting his first economic summit.

To help ensure that happens, G-20 countries agreed to give the 186-member International Monetary Fund a role assessing their efforts. The oversight function will be among the topics discussed by policy makers as they head this week to Istanbul for the annual meetings of the IMF and World Bank.

Slower Growth

After expanding at a 4.6 percent annual pace in the five years through 2008, the world economy might be in for a spell of slower growth unless G-20 countries follow complementary policies, said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. is counting on the crisis and its aftermath to convince countries like China that it’s in their own interest to shift away from exports toward domestic demand as Americans save more and spend less, Truman said. The U.S. savings rate rose to a 14-year high of 6 percent in May before falling to 4.2 percent in July.

“U.S. consumption is all but certain to be very stagnant for the next few years,” said Desmond Lachman, a former IMF official who’s now at the American Enterprise Institute in Washington. “You’ve got to find other sources of demand.”

In the meantime, G-20 leaders acknowledged the recovery remains dependent on emergency government measures, and they pledged to avoid pulling back until the time is right. “We will avoid any premature withdrawal of stimulus,” their communiqué said.

Stocks Decline

That promise may encourage investors to take on more risk after signs of economic weakness prompted the biggest weekly declines in European and U.S. stocks since July, said Sophia Drossos, co-head for global foreign exchange strategy at Morgan Stanley in New York.

“The G-20 outcome could lead to a reversal of the selloff,” she said.

Demand for U.S. durable goods unexpectedly fell in August and loans to households and companies in Europe grew at the slowest pace on record, reports showed last week.

The Standard & Poor’s 500 Index has dropped 2.2 percent since Sept. 18, and Europe’s Dow Jones Stoxx 600 Index slipped 2.4 percent in the same period.

Developing-nation equities suffered their steepest weekly decline in more than two months last week, with the MSCI Emerging Markets Index ending 1.2 percent lower.

Lopsided Trade Flows

G-20 leaders pledged to correct the lopsided flows of trade and investment blamed for contributing to the crisis: U.S. consumers borrowed money to finance purchases of Asian-made cars and flat-screen TVs. Asian exporters, meanwhile, invested their surplus cash in U.S. Treasury notes, pushing down borrowing costs and further fueling the credit binge.

Some economists cast doubt on the pledges by the G-20, since no sanctions will be used to enforce them and a similar push in 2006 by the IMF petered out.

“Unless the major surplus and deficit economies actually decide that they really want to go down this route, it’s hard to imagine anything will happen,” said Kenneth Rogoff, a former IMF chief economist who now teaches at Harvard University.

Obama, Chinese President Hu Jintao and European leaders including German Chancellor Angela Merkel face plenty of hurdles as they seek to place the world economy on a more stable footing.

The U.S. must cut a $1.6 trillion federal budget deficit, while China contends with a record $2.1 trillion in foreign exchange reserves representing years of accumulated trade surpluses.

Central Bankers

Central bankers, who did not attend the summit, may be wary of any suggestion that they sacrifice their independence in the name of worldwide coordination. And global institutions such as the IMF and the Basel, Switzerland-based Financial Stability Board may lack the horsepower to carry out the added responsibilities they’re being given.      Chinese officials said they recognize that the country must shift its economic priorities.

“China also understands that its economic-growth model has some flaws,” Ma Xin, director-general of international cooperation at the National Development and Reform Commission, China’s top planning agency, said in Pittsburgh.

Change may take time, Ma suggested. He said that his nation’s “low” consumer spending is something that has “accumulated over many years and it is a structural problem.”

Treasury Secretary Timothy Geithner pointed to the increase in the U.S. savings rate as an “encouraging sign.”

‘Measured Optimism’

After “a long period of time living beyond our means, you see people already changing behavior,” the Treasury chief said in Pittsburgh. “That’s one reason why we can stand here today and express some measured optimism about our capacity to put in place a more sustainable recovery.”

There are other signs that imbalances are shrinking. The U.S. current-account deficit narrowed in the second quarter to $98.8 billion, the least since 2001. Credit Suisse AG predicts Chinese imports may rise 30 percent to $313 billion in the fourth quarter as the government’s stimulus program spurs domestic demand.

“While the global rebalancing to date has been significant and broad-based, it remains to be seen whether this process will continue,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.

Giving emerging markets such as China, India and Brazil a greater stake in global decision-making may ensure that it does.

Supplants G-8

The broader G-20 will supplant the Group of 8, a club of the most highly developed nations plus Russia, as the guardian of the global economy after last week’s summit. The G-20 accounts for about 85 percent of global gross domestic product.      The risk is that the larger group will find it more difficult to make decisions, said Tim Adams, who served as the U.S. Treasury’s top international official in the administration of George W. Bush.

“The bigger the grouping, the harder it is to get consensus,” said Adams, managing director of the Lindsey Group, a Washington-based economic advisory firm. “You can’t have the agenda taken over by the favorite hobby horses of each country.”

The third summit of G-20 leaders in the past year also plotted a road map for revamping the banking industry after the two previous meetings, in Washington and London, focused on fighting market turmoil and reversing the spiral into recession.

Deferred Bonuses

Leaders agreed that banks must avoid “multiyear guaranteed bonuses” and that a “significant portion of variable compensation” must be deferred, paid in stock, tied to performance and subjected to clawbacks if earnings flop. They stopped short of endorsing a French proposal to introduce specific caps on pay.

Awards must also be curbed if they are “inconsistent with the maintenance of a sound capital base,” the G-20 said. Regulators should be allowed to modify the compensation practices of key firms. Banks will also have to increase the quality and quantity of capital they hold by the end of 2012.    The regulatory overhaul is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television.

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Bank of Japan Deputy Governor Hirohide Yamaguchi said maintaining emergency credit programs for “a long time” might hamper a recovery in the financial industry even as he expressed doubt about the economic outlook.

“We need to make a judgment at an appropriate time, according to the improvement” of credit, Yamaguchi said today in Tokyo, referring to the withdrawal of stimulus steps. “We also need to be mindful that keeping the temporary measures for a long time may hurt an autonomous recovery of market functions and invite the distortion of the allocation of resources.”

Yamaguchi’s remarks contrast with new Financial Services Minister Shizuka Kamei, who said this week that banks should delay seeking repayment of loans to small companies. Policy makers around the world are debating the timing of withdrawing stimulus measures as economies begin to recover from the worst global recession since the Great Depression.

“Given the most recent comments from Kamei, the BOJ may not be able to end the corporate fund-raising supportive measures” when they expire on Dec. 31, Akio Yoshino, chief economist at Societe Generale in Tokyo, said yesterday.

The deputy governor spoke a day after the central bank maintained its programs of buying corporate debt from lenders and providing them with unlimited loans in exchange for collateral, having extended them until the end of the year in July. Governor Masaaki Shirakawa said the fate of the measures depends on developments in financial markets and funding conditions for companies, and stopped short of warning about the risks of keeping them in place.

Loan Moratorium

Kamei said today he wants to discuss as soon as possible the potential for a moratorium on loan repayments for some small companies. Prime Minister Yukio Hatoyama this week appointed Kamei, who is the leader of the new government’s junior coalition partner the People’s New Party.

Finance Minister Hirohisa Fujii today indicated his reluctance to implement a freeze on loan repayments, saying the nation took similar action more than 80 years ago and he’s not sure the economy and financial system are in as bad shape as they were then guaranteed fast personal loans.

“I’m not sure we face that kind of situation now,” he said at a news conference.

The central bank said yesterday borrowing conditions for companies “are increasingly showing signs of improvement.” Bank of Japan board member Miyako Suda said earlier this month that companies are finding it easier to get access to funds, reducing the need for the central bank’s credit-easing steps.

‘Inclined to Unwind’

“Yamaguchi’s comments signal that the central bank is inclined to unwind the extra measures, though it’s still unclear whether they want to terminate all of the programs or scale them down,” said Mari Iwashita, chief market economist at Daiwa SMBC Securities Co. in Tokyo. “I don’t think they’ll announce a decision next month, but they’re clearly moving toward ending the programs.”

Yamaguchi said the economic outlook is clouded by a “significant level of uncertainty,” while reiterating that a recovery is likely to take hold later this year. “We will keep paying close attention to a variety of risks,” he said in today’s speech.

Central bank policy makers kept the overnight lending rate at 0.1 percent at yesterday’s meeting, and said they remain concerned about the strength of the economy even as it shows “signs of recovery.” Shirakawa said he isn’t confident demand will hold up once global stimulus fades and companies finish replenishing inventories.

Yamaguchi said the central bank is seeing a “positive mechanism” in the world’s second-largest economy as exports and production benefit from improvements in the global economy.

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The number of states posting a decrease in the unemployment rate in July more than tripled from the previous month, according to a government report released Friday.

The Labor Department said 17 states and the District of Columbia reported a drop in unemployment rates in July, compared with 5 states in June.

Increases in unemployment rates were reported in 26 states, and 7 states posted no change from the previous month.

While the report showed improvement for the battered labor market, the changes in unemployment rates were very modest across the board: overall, unemployment rates didn’t change much from June to July.

Only two states, Vermont, at 0.5 percentage point, and Minnesota, at 0.3 point, showed what were considered significant decreases in unemployment rates.

California lost the most jobs in July, shedding 35, 800 jobs, due to its large size. North Carolina lost 26,400 jobs, Florida lost 25,200 jobs and Illinois shed 13,000 jobs.

Compared to the same time last year, all 50 states and the District of Columbia posted higher unemployment rates, with 15 states having double-digit unemployment percentages.

Michigan had the highest unemployment rate at 15%, but that was down 0.2 percentage point from June. Michigan has been especially hard hit by the collapse of the U.S. auto industry and the housing meltdown.

Rhode Island posted the second highest unemployment rate at 12.7% and Nevada rounded out the top three with a 12.5% rate.

Four states — California at 11.9%, Georgia at 10.3%, Nevada at 12.5%, and Rhode Island at 12.7% — posted record high jobless rates.

The national unemployment rate fell to 9.4% from 9.5% in June, the first decline in that closely watched reading since April 2008.  

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U.S. banks tightened standards on all types of loans in the second quarter and said they expect to maintain strict criteria on lending until at least the second half of 2010, a Federal Reserve report showed today.

“Domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households,” the Fed said in its quarterly Senior Loan Officer survey. “The net percentages of banks that tightened declined compared with the April survey.”

The report suggests that lenders and borrowers are wary of taking on more risk until the U.S. economy shows clear signs of growth. Most banks expected standards across all loan categories “would remain tighter than their average levels over the past decade until at least the second half of 2010,” the report said.

“Consumer and commercial borrowers have clamped down,” Kevin Fitzsimmons, a managing director at Sandler O’Neill & Partners LP in New York, which specializes in bank research, said before the report. “You just need some economic growth to materialize and then you will see more lending.”

The Fed report said that demand for loans continued to weaken “across all major categories” except prime residential mortgages. Banks cited falling demand and credit quality as the primary reasons for decreases in commercial and industrial lending, according to the central bank.

Some 55 U.S. banks and 23 U.S. branches of foreign banks were surveyed by the Fed between July 14 and July 28.

Home Mortgages

Total home mortgages were nearly unchanged in the first quarter compared with the final quarter of 2008 at $10.4 trillion, according to the Fed’s second-quarter Flow of Funds report. Consumer credit decreased at an annual rate of 5.25 percent in the second quarter, the Fed said Aug. 7 in a separate release.

“After holding nearly flat in the April survey, the net percentage of domestic banks that tightened standards on prime residential real estate loans fell to roughly 20 percent,” the loan officer survey said. “The net fraction of respondents that tightened standards on nontraditional residential mortgages fell to roughly 45 percent, from 65 percent in April.”

The Fed today extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real-estate industry from rising defaults and falling prices payday loans.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Tighter Than Average

With regard to commercial real estate loans, “nearly all banks indicated that current standards were tighter than their longer-term average levels,” the Fed report said. “Around 40 percent expected standards to return to longer-term average levels by the second half of 2010 or in 2011 for both investment-grade and non-investment-grade lending.”

The Fed and the Treasury have loaned or invested billions of dollars in banks to support credit growth. The Fed has expanded total assets on its balance sheet by $1.1 trillion to $2 trillion, channeling loans to banks, corporations, and programs aimed at reviving financing to consumers and real estate.

The Federal Open Market Committee said Aug. 12 that “economic activity is leveling out,” the strongest indication yet that officials may see an end to the worst recession since the 1930s. Household spending remains constrained due to job losses and “tight credit,” officials said.

Economy to Expand

Forecasters surveyed by Bloomberg News expect the economy to expand at a 2.2 percent annual pace in the third quarter, according to the median estimate of 55 economists.

Economic reports suggest the recovery could be slower. Sales at U.S. retailers fell 0.1 percent in July, the first drop in three months, the Commerce Department said Aug. 13. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 in August, the lowest since March, from 66 in July. The measure reached a three-decade low of 55.3 in November.

A 3.3 percent decline in the Standard & Poor’s Financials Index helped lead the S&P 500 to a 2.2 percent decline at 1:45 p.m. in New York trading today.

The Fed’s April Senior Loan Officer Survey showed that about half of respondents reported tightened lending on prime mortgages, and about 60 percent set stricter standards for credit card loans.

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U.S. and Chinese economic leaders pledged to keep up stimulus efforts and to rein in trade and investment imbalances that contributed to the global crisis.

“It is vitally important for China and the United States to see through their commitments to repair the financial system and lay the foundation for recovery,” Treasury Secretary Timothy Geithner said at the end of the first Strategic and Economic Dialogue talks under the Obama administration in Washington. China’s Vice Premier Wang Qishan said the two will press for an “expansion” of the recovery.

The U.S. pledged to curb the budget deficit and boost household savings, and China committed to rely less on overseas demand for its goods. There were few signs of the disputes over the yuan and market access that characterized talks in the Bush administration. Analysts expressed skepticism whether the two governments can secure “balanced” growth.

“These statements are made in good faith, but the issue is that you can’t just wave a magic wand and get there overnight,” said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney. “These things take long periods of time.”

The two sides indicated that while economic data improved in recent months, a self-sustaining rebound has yet to emerge. In the U.S., President Barack Obama is implementing a $787 billion fiscal stimulus and Federal Reserve Chairman Ben S. Bernanke doubled the central bank’s balance sheet to about $2 trillion. China has a 4 trillion yuan ($585 billion) stimulus.

‘Strong’ Responses

“Both countries pledged to maintain their strong policy responses until recovery is secured,” the U.S. Treasury said in a statement.

Zhou Xiaochuan, the Chinese central bank governor, said China will wait for the U.S. to begin to pull back on its stimulus measures before deciding whether it will do the same.

“If we see that the U.S. starts to exit its expansionary fiscal and monetary policies, then China will see what it will do at that time,” Zhou said at a press briefing today.

The People’s Bank of China governor also said that “I believe that the Federal Reserve of the U.S. will make appropriate arrangements to prevent high inflation.”

The U.S. Treasury highlighted China’s commitments to liberalize business and investment rules, including letting international banks underwrite Chinese bonds, raising the threshold for foreign direct investments that need government approval, and loosening limits on interest rates.

‘Sustainable’ Deficit

China’s officials reiterated their concern at the record American budget deficit, and were told by Obama’s aides that there’s a plan to achieve a “sustainable” deficit by 2013. Their comments today indicated they accepted the U.S. presentation.

“Credible steps will be taken by the U.S. to control the deficit,” China’s Finance Minister Xie Xuren said at a press briefing today. “The Treasury secretary stated clearly that they are placing a lot of importance on this issue.”

At stake is sustaining demand for U advance payday loans.S. debt from China, the largest foreign holder of Treasuries. The federal deficit is on course to reach $1.8 trillion this year; China’s investments in Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

“We are joined at the hip with China and that means both countries need to be sensitive to each other’s needs, each other’s problems,” Mickey Kantor, a former U.S. Trade Representative, said in an interview from Los Angeles.

Yuan Policy

China’s Treasuries holdings also are the result of holding down the value of the yuan, a policy that U.S. lawmakers have charged is designed to provide a subsidy for its exports. The yuan has hovered around 6.83 per dollar since July last year after gaining about 21 percent since China lifted a strict peg to the dollar in July 2005.

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told reporters yesterday that “compared with previous meetings” between Chinese and U.S. officials, “the U.S. side doesn’t lay as much emphasis on renminbi exchange-rate reform and opening of capital markets.” The yuan is a denomination of the renminbi.

The effort to produce more “balanced” growth comes after Bernanke and other officials blamed imbalances in trade, spending and investment for helping spark the crisis.

Trade, Investment

U.S. consumers relied on borrowing to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought bonds and depressed global yields. Lower borrowing costs helped stoke the housing and credit booms that turned to bust in 2007.

China and the U.S. will aim to “bring about more balanced and sustainable global economic growth after a global recovery is firmly established,” the two sides said in a fact sheet on the economic side of the talks.

“Building a consumption-based economy is overdone and overhyped” with regard to China, Donald Straszheim, who heads Straszheim Global Advisors Inc. in Los Angeles. “It will take a generation, not just a few years, for China’s consumer sector to really develop.”

In the U.S., officials will take steps to reduce its current-account deficit, boost private savings and cut its budget deficit once a recovery is “firmly established,” Geithner said.

The U.S. savings rate reached 6.9 percent in May, the highest level since 1993, as Americans consumers curtailed spending. Geithner said he expects those gains to be part of a more permanent shift.

“We’re more likely to decide that these changes we’ve seen in private savings already are durable,” Geithner said. “We’ve learned some tough lessons as a country. I think the basic lesson, the importance of living within our means, is best for the country, and at the household level, is an important, necessary lesson.”

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