ROME, Feb 14 (Reuters) - The G7 industrial powers, fearing a 1930s-style resurgence of protectionism, ended crisis talks in Rome on Saturday with a pledge to do all they could to combat recession without distorting free trade.

Aware of their limits, they also adopted a more conciliatory tone towards China, a non-member regarded as vital to success at an April G20 summit in London where both rich and developing economies hope to produce visible progress on promises to make the global financial system safer and more accountable.

"We are confronted with a broader and deeper slowdown than has been experienced in decades," said U.S. Treasury Secretary Timothy Geithner.

"We will work closely with our colleagues in the G7 and the G20 to build consensus on reforms that match the scope fo the problem revealed by this crisis."

On the day in Rome, it was mostly renewed pledges from the gathered finance ministers and central bankers, amid mounting tension over the impact economic stimulus plans and state bailouts of industry could have on each other.

Geithner, making his G7 debut in the job, publicly rowed back on comments that Beijing was manipulating its exchange rate to its advantage in export markets and sought to soothe concerns over Washington's own anti-crisis plans.

BlackBerry maker's shares fall 14.5% on weak fourth-quarter forecast.

What the new top diplomat will--and won't--get out of her Asian tour.

Hillary Clinton, breaking recent tradition, will go to Asia on her first trip abroad as secretary of state. Beginning the middle of this month, she will visit Japan, Indonesia and South Korea. The last stop on her itinerary will be China. China was also the last stop on Madeleine Albright's maiden trip in 1997 when she started in Europe and worked her way east. Both Condoleezza Rice and Colin Powell visited Europe and the Middle East on their first foreign visits.

Rich in symbolism, first trips are always important. To her credit, Mrs. Clinton is making Tokyo her initial stop. As she told the Senate last month, "Our alliance with Japan is a cornerstone of American policy in Asia."

Despite their importance, the Japanese have come to doubt their relationship with the U.S., and ties became strained toward the end of the Bush administration. They were worried about many differences they had with Washington--such as those over North Korea--but their real concern was that America would eventually abandon them in favor of the giant next door.

Indeed, it was Mrs. Clinton's husband who started the "Japan passing" fear by going to Beijing in 1998 and skipping Tokyo. The State Department, always concerned about angering the Chinese, said that Mrs. Clinton chose Tokyo for her first stop due to "scheduling" reasons, but that's not how the rest of the world sees it.

Yet few outside Japan will be watching when the secretary of state touches down in Tokyo. For one thing, Japan looks like it is in the midst of a historic political transition. The odds are that both Prime Minister Taro Aso and his Liberal Democratic Party will be out of power by September, the deadline for the next election for the Diet's lower house.

The Jakarta and Seoul stopovers will also be largely ignored by the global community. It is only when the planet's lone superpower pays a visit to its most populous nation that the world will start paying attention.

The meeting, though, is less important than most observers assume. Just about every American these days worries that China will stop purchasing Treasury debt, which will be issued to fund the Obama administration's planned stimulus package--and its other spending requirements.

The Chinese have played upon this American anxiety, most recently at the end of last month when Premier Wen Jiabao, speaking in London, suggested that President Obama would like to know what Beijing will do in this regard.

Yet there is not much Mrs. Clinton can say to her Chinese hosts that will affect how much U.S. Treasury debt they decide to purchase. As a practical matter, Beijing needs to park most of its dollar earnings from exports in safe dollar-denominated instruments. And as Chinese exports fall--forecasts for last month indicate they dropped 14% after recording declines in November and December--Beijing will buy fewer Treasuries. Mrs. Clinton, to avoid signaling that Beijing has leverage, could surprise the Chinese and skip this topic altogether.

There are other issues to talk about, of course, but, as the Bush administration discovered after seven years of intensive discussion, it is unlikely the Chinese can be persuaded to do anything they would not otherwise have done on their own.

For example, China does not look like it will substantially change long-held policies supporting the regimes in Iran and North Korea. Chinese currency tactics are largely set, as are positions on the Doha Trade Round and access to China's domestic markets. And there will be no movement on Taiwan.

Human rights, a perennial topic, is almost beyond discussion these days as Beijing has dug in its heels. Unless Mrs. Clinton is prepared at this early stage to make drastic concessions or apply unprecedented pressure, she will not make significant progress this month.

There are a host of things China wants--a giveaway of environmental technology is on the list, as is more information sharing with the Pentagon--but the better strategy is to have the Chinese come to Washington to ask for them, rather than have Mrs. Clinton go to China to hand them out.

The Obama administration has not even named its ambassador to Beijing or had time to formulate China policy, so the secretary of state's trip to the Chinese capital looks premature. In fact, it appears as if the new top diplomat is going to Beijing at this moment less to pursue policy objectives than to get a head start on consolidating her grip on China policymaking inside Washington.

Mrs. Clinton's most important scheduling mistake is not that she's going to China, however. It is the stopover that is not on the itinerary. If she wanted to go to Asia early in her tenure--and that is a generally sound strategy--she should have reserved time for New Delhi.

India shares values with the U.S. as well as strategic goals. The relationship is promising, and there is much to discuss. The secretary of state would be surprised how much she could advance relations with the Indians—and how much progress she could make with the Chinese if they saw her talking to the nation they fear the most.

Geithner's Financing Fiasco

Treasury's plan to finance asset sales may not be enough.

WASHINGTON, D.C.--Treasury Secretary Timothy Geithner says he wants to involve private investment in the next phase of the government's efforts to stabilize the financial system. Doing so might not be as easy as he thinks.

The creation of a so-called "Public-Private Investment Fund"--a way to remove toxic assets from banks' balance sheets--is one of the few kernels of new information that Geithner revealed Tuesday while unveiling the Treasury's plan to bolster the financial sector. Details are sketchy.

On the surface, it seems like a pretty slick idea. Since the government cannot figure out how to value these assets, they will entice private investors to do so. One way to avoid the valuation problem is to put it on somebody else's shoulders.

Of course, some incentive must be provided to encourage investors to take on the task of valuation. That's no small task.

"If the pricing were easy, someone would have done it," says Donald Ogilvie of the Deloitte Center for Banking Solutions and a former head of the American Bankers Association.

Treasury officials have indicated they'll provide only the financing for investors to buy these securities. What Uncle Sam won't offer: guarantees on those assets or a share in any losses.

That means that investors still face the enormous risk of mis-pricing the assets. Ogilvie worries that overpaying could lead to losses in the financing the government provides.

The Treasury wants to create a fund worth $500 billion to $1 trillion. To do that, it will need to provide relatively inexpensive financing so that investors won't quickly burn through most of their cash to buy the securities.

Treasury Secretary Timothy Geithner said Tuesday the new administration will wage an aggressive two-front battle against the worst financial crisis in seven decades with commitments that could total up to $2 trillion.

But investors appeared wary of the government's latest plans. The Dow Jones industrial average plunged about 300 points in afternoon trading as financial stocks led the market lower, reflecting Wall Street's growing concerns about the government's ability to revive the banking industry.

The efforts were part of the government's major overhaul of the widely criticized financial rescue program.

The Federal Reserve said it would expand the size of a key lending program to as much as $1 trillion from $200 billion. The program, which has yet to begin operations, is designed to boost resources for consumer credit and small business loans.

The Fed said the program would be expanded to cover the troubled commercial real estate market and certain residential mortgages.

"Right now critical parts of our financial system are damaged," Geithner said. "Instead of catalyzing recovery, the financial system is working against recovery and that's the dangerous dynamic we need to change."

Geithner said the loss of 3 million jobs last year, and another 600,000 just last month underscored the urgency for government action.

General Motors Corp. said Tuesday it will cut 10,000 salaried jobs, citing the need to restructure itself with a government deadline looming and amid some of the worst sales in the auto industry's history.

The Detroit-based automaker said it will reduce its total number of salaried workers to 63,000 from 73,000 this year. About 3,400 of GM's 29,500 salaried U.S. jobs are expected to be eliminated.

The company's statement said that the separations would be done through GM's severance plan, so there would be no buyout or early retirement packages as GM had offered in the past.

In its plan to Congress submitted late last year, GM said work force reductions would be necessary in order for it to be viable for the long term. Most of the cuts are expected to take place by May 1.

GM said the cuts will vary by global regions depending on staffing levels and market conditions.

In addition, GM said it will cut the pay of most of its salaried U.S. workers beginning May 1 and continuing at least through the end of the year at which time the pay cuts will be evaluated.

The pay of U.S. executive employees will be cut by 10 percent, while other salaried workers will see cuts of 3 percent to 7 percent, GM said.

Microsoft Director Bill Gates sold 2 million shares of the software company he founded for $37.7 million, according to a late Monday filing with the Securities and Exchange Commission.

He sold the shares at the weighted average price of $18.8361 - the price range actually was $18.32 to $19.09.

Gates is left with 756.1 million shares held directly and 424,816 indirectly.

Monday's filing gives Gates a total of 15.8 million that he has sold in 2009 for a value of $290 million.

The current slate of sales comes on the heels of 20 million shares Gates sold from Oct. 31 to Nov. 13 last year at a value of $435 million.

In the past six months, excluding Monday's filing, company insiders have sold a total of 37.2 million shares for $749.6 million. No shares were purchased.

Is America Going The Way Of Japan?

There are differences--but also worrying similarities.

William Pesek, a savvy Asia columnist for Bloomberg, reports, in his latest column, views about the structural crisis faced by Japan that I first outlined in a 1996 paper, "Japan's Economic Crisis." Thirteen years later, Japan is entering another severe slump, one that looks like even worse than that of other advanced economies. In the U.S., Europe and some other advanced economies, along with China, the second derivative of growth and of other economic indicators is approaching positive territory (i.e., growth is still negative, but GDP may be falling at a slowing rate). In Japan, it is still highly negative. There, the fall is accelerating, resembling a free fall--a severe case of stag-deflation.

The sad case of Japan's free fall is a cautionary tale of what happens when a high-flying economy has a real estate and equity bubble that goes bust, avoiding (for too long) doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a lengthy, L-shaped near-depression. Japan had over a decade of stagnation and deflation, then a mild, sub-par growth recovery that lasted only three years, and is now spinning into another severe stag-deflation.

Keep alive zombie banks and zombie corporations with balance sheets and debts that haven't been restructured, as in Japan, and you end up in an L-shaped near-depression.

Let me explain why the U.S. and the global economy face the risk of an L-shaped near-depression if appropriate policy actions are not undertaken.

First, note that Japan made many policy mistakes that the U.S. should and could avoid. Japan cut policy rates two years after the bust of its asset bubble, while the U.S. eased monetary policy aggressively after August 2007. Japan went into quantitative easing and reversed its zero interest rate policy too slowly; it waited two years after the bursting of its bubbles to do a fiscal stimulus (and reversed it too early with a consumption tax). The U.S. did one--albeit a failed one--last year, and is doing another large one now. Japan created a convoy system of zombie banks and corporations that were restructured too late, while the U.S. may become more aggressive in cleaning up the financial system. Japan had structural rigidities, like lifetime employment, that slowed down the adjustment, while the U.S. has flexible labor markets, with workers who have lost jobs moving fast to new sectors and regions where jobs are abundant.

But by many measures, the U.S. started its financial and economic crisis in much worse shape than Japan. Indeed, Japan was in much better macro and financial shape than the U.S. before and during its stagnation. Japan had the benefit of high household and national savings rates and low leverage of the household sector, a large current account deficit and a net foreign asset position that allowed it to finance its large fiscal deficit during the stagnation. The U.S., by contrast, has had near-zero household savings and massive leverage for years. The U.S. carries large current account deficits and is the largest net foreign debtor in the world, relying on the kindness of strangers, or--more accurately--on the kindness of its strategic rivals (China, Russia) or unstable petro states to finance its twin fiscal and current account deficits.

The U.S. may make some of the same mistakes as Japan and suffer similar macro policy constraints that could limit its ability to more rapidly resolve the financial crisis. First, monetary policy, however aggressive, is like pushing on a string when you have a glut of capacity, credit and insolvency, rather than just illiquidity problems.

Second, fiscal policy has its limits for a nation that is already the biggest net debtor and net borrower, one which needs to borrow $2 trillion net ($2.5 trillion gross) to finance its fiscal deficit. Every other country (including the U.S.' traditional lenders and creditors) is now running large fiscal deficits with the risk of a sharp back-up in long-term interest rates once the tidal wave of new U.S. Treasuries hits the market.

Third, the U.S. is taking an approach to bank recapitalization and cleanup that looks more like Japan--a convoy system and a delayed true cleanup, as the necessary pain to shareholders and unsecured creditors of banks is avoided or delayed--than like the successful outright takeover and nationalization process Sweden has chosen.

Fourth, the market-friendly, case-by-case approach to the necessary debt reduction of insolvent private non-financial agents--corporate for Japan, households for the U.S.--will be too slow. A systemic debt overhang requires across- the-board debt reduction that is not politically feasible, at this point, in the U.S.

Thus, even if the U.S. were to do everything quickly and correctly (in terms of monetary, fiscal, bank cleanup and household debt reduction) we would still have a severe two-year U-shaped recession, lasting until early 2010. The weak recovery of growth, 1% or so, continues to feels like a recession even after you're technically out of it, until 2010-2011. But if the U.S. does it wrong, this severe U-shaped U.S. and global recession may turn into a nasty, multi-year, L-shaped near-depression like that experienced by Japan.

We don't have to go back to the Great Depression (when output fell over 20% and unemployment peaked over 25%); even a stag-deflation and near-depression like that in Japan would be most severe for the U.S. and the global economy. And while six months ago I was putting the odds of this L-shaped near-depression at 10% or so, they have now risen to one-third.

Time is of the essence, and the clock is working against U.S. and global policymakers. The time to stop dithering has long passed; the time to implement a program of forceful, coherent, credible, globally coordinated monetary, fiscal, financial clean-up and debt-resolution policies is now.

The U.S. and global economy are truly risking a near-depression if the policy reaction is not bold, aggressive, sustainable and credible.

Deal announced on emergency stimulus plan

With job losses soaring nationwide, Senate Democrats reached agreement with a small group of Republicans Friday night on an economic stimulus measure at the heart of President Barack Obama's plan for combatting the worst recession in decades.

"The American people want us to work together. They don't want to see us dividing along partisan lines on the most serious crisis confronting our country," said Sen. Susan Collins of Maine, one of three Republican moderates who broke ranks and pledged their votes for the bill.

Democratic leaders expressed confidence that the concessions they had made to Republicans and moderate Democrats to trim the measure had cleared the way for its passage. No final vote was expected before Monday.

Officials put the cost of the bill at $827 billion, including Obama's signature tax cut of up to $1,000 for working couples, even if they earn too little to pay income taxes. Also included are breaks for homebuyers and people buying new cars. Much of the new spending would be for victims of the recession, in the form of unemployment compensation, health care and food stamps.

Republican critics complained that whatever the cost, billions were ticketed for programs that would not create jobs.

In a key reduction from the bill that reached the Senate floor earlier in the week, $40 billion would be cut from a "fiscal stabilization fund" for state governments' education costs, though $14 billion to boost the maximum for college Pell Grants by $400 to $5,250 would be preserved, as would aid to local school districts for the No Child Left Behind law and special education.

A plan to help the unemployed purchase health insurance would be reduced to a 50 percent subsidy instead of two-thirds.

Recession-battered employers eliminated 598,000 jobs in January, the most since the end of 1974, and catapulted the unemployment rate to 7.6 percent. The grim figures were further proof that the nation's job climate is deteriorating at an alarming clip with no end in sight.

The Labor Department's report, released Friday, showed the terrible toll the drawn-out recession is having on workers and companies. It also puts even more pressure on Congress and President Barack Obama's administration to revive the economy through a stimulus package and a revamped financial bailout plan, both of which are nearing completion.

"These numbers, and the very real suffering of American workers they represent, reinforce the need for bold fiscal action," said Christina Romer, chief of the White House's Council of Economic Advisers. "If we fail to act, we are likely to lose millions more jobs and the unemployment rate could reach double digits."

The latest net total of job losses was far worse than the 524,000 that economists expected. Job reductions in November and December also were deeper than previously reported.

With cost-cutting employers in no mood to hire, the unemployment rate bolted to 7.6 percent in January, the highest since September 1992. The increase in the jobless rate from 7.2 percent in December also was worse than the 7.5 percent rate economists expected.

All told, the economy has lost a staggering 3.6 million jobs since the recession began in December 2007. About half of this decline occurred in the past three months.

"Companies are in survival mode and are really cutting to the bone," said economist Ken Mayland, president of ClearView Economics. "They are cutting and cutting hard now out of fear of an uncertain future."