Business and Finance

If you haven’t heard, big changes are soon coming for the credit card business.

The CARD Act, which was signed into law last May, will finally go into effect Monday, meaning big changes for the millions of card-carrying Americans across the country.

Among other things, it will eliminate some of the more egregious practices of the past like so-called "double-cycle billing", arbitrary rate increases and hefty fees for exceeding your credit limit.

But while the new law also promises consumers more transparency about their credit card bill, cardholders still need to watch out for a whole new series of traps and tricks.

Higher fees: For starters, consumers could suddenly find themselves socked with a variety of new fees and charges.

Banks and other card issuers have already been aggressively implementing new fees or raising existing ones to help make up for any potential revenue lost as a result of the CARD Act.

Last May, for example, Discover Financial Services (DFS, Fortune 500) announced it would start charging a 2% fee on all purchases made outside the United States.

And whereas 3% was once the standard charge for rolling over a balance from one credit card to another, issuers like JPMorgan Chase (JPM, Fortune 500) are now assessing customers a 5% fee, according to Bill Hardekopf, CEO of the card rating site LowCards.com.

But with the new law setting no restrictions on the types of fees issuers can implement, consumers should pay particularly close attention to the "Terms and Conditions" section of their statement so they know exactly what they are being charged for, warn experts.

"Fees are the one source of revenue that will become more and more important," said Hardekopf.

Tougher to get a card: As Congress moved closer to passing the law last spring, banking industry advocates cautioned that shaking up the status quo would mean that credit would be more difficult to come by for consumers.

So far, that seems to be playing out as predicted.

The amount of credit made available to consumers by credit card companies plunged by $252 billion, or 7%, between March and September of last year, according to IRA Bank Monitor.

Credit is poised to tighten even further. As part of the CARD Act, credit card companies will be severely restricted in how they market cards to college students, potentially shrinking an important part of their business.

But issuers are also expected to implement much more severe underwriting practices. Some may demand, for example, details on an applicant’s income or proof of other savings.

Consumers with poor or even a mediocre credit history, as a result, may find it much more difficult to get a card or have their credit limit extended after the new law takes effect on Feb. 22, said Joseph Ridout of the advocacy group Consumer Action.

"I think it is fair to assume that credit card companies are going to scrutinize their potential customers a lot more closely than they did in the past," he said.

Fewer rewards: Consumers may also be increasingly unable to enjoy the fruits of their spending as a result of the new law.

It wasn’t that long ago where a cardholder could easily earn credit towards a free airline ticket or cash back for every dollar spent. But issuers are now quietly becoming more stingy with their rewards in an effort to save money.

American Express (AXP, Fortune 500), for example, recently told its co-branded card customers they would not be able to accrue reward points on their purchases if they were late with a payment. Only by paying a $29 fee could they recoup those points.

To avoid missing out, experts suggest that consumers carefully read any notices they get from their credit card company about changes to their loyalty or rewards program.

"Rewards can be another way of penalizing people too," notes Nick Bourke, manager of the Pew Safe Credit Cards Project.

Rising rates: One of the biggest victories for consumers in the new law are a series of limits on how and when credit card companies can set interest rates.

Whereas in the past, banks could raise your annual percentage rate just for missing a payment on your cell phone bill or without giving a consumer much advance notice, such practices will soon be outlawed. Issuers now have to alert you at least 45 days in advance before raising your rate under the CARD Act.

The new law won’t shield consumers from rate hikes altogether, though.

In recent months, banks have moved consumers over to so-called variable rate cards, whose rates fluctuate based on the direction of the prime rate. And with that rate at historic lows, experts said consumers should be prepared for at least a moderate increase in their APR at some point.

The new law also does not include any sort of interest rate cap banks and issuers can charge customers that are late on their payment by two months or more.

Credit card companies may remain reluctant to impose any usurious rates ahead of a review of penalty rates and fees by the Federal Reserve scheduled for later this year and given the public discontent for banks these days.

But that doesn’t mean the days of big rate hikes are gone for good, Bourke said — especially for consumers who are overwhelmed by debt. So experts suggest consumers should take extra care to stay current on their bills.

"The [CARD] Act doesn’t absolve anyone from having to pay back their bills or take people out of harm’s way if they run into trouble," said Bourke.

Talkback: Are you college student or under 21 and concerned or pleased about the tougher standards that will make it more difficult for some young adults to get a credit card? E-mail your story to jennifer.liberto@turner.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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Four decades ago Stewart Brand opened The Whole Earth Catalog with a rollicking mission statement: "We are as gods, and might as well get good at it."

It was an apt mantra for the eco-friendly, do-it-yourself lifestyle guide, which was so clever it won a National Book Award. Now a futurist, author, and business consultant, Brand opens his latest book, Whole Earth Discipline: An Ecopragmatist Manifesto, with an urgent update of his youthful declaration: "We are as gods and HAVE to get good at it."

The cause for urgency is climate change. Until 2003, Brand writes, "I had only the usual concerns" about the seemingly "dire but distant" issue. Then he saw studies of Greenland ice cores revealing that, in the past, the climate has tipped into a radically different state, such as an ice age, in less than a decade.

Runaway positive feedback is the likely cause. Here’s an example: As human greenhouse emissions mount, global warming causes mirror-like polar ice to give way to dark ocean. That makes the Arctic absorb more solar heat, which melts more ice, leading to yet more heat absorption. This and other positive feedbacks are likely driving the ominously fast melting of Arctic ice, which was half gone by the summer of 2007, three to four decades earlier than predicted — the great melt is unfolding with tipping-point-like speed.

Channeling climate scientists, Brand predicts that fresh water and other resources will be in desperately short supply in many areas of a climate-changed world. A global state of constant war over dwindling resources might well ensue, killing billions.

Too dire? Consider: Tibetan Plateau glaciers, which feed shared rivers of China, India, Pakistan, and other Asian countries, are now melting away to expose a drought-prone tinderbox filled with vying nuclear powers, as well as "feral zones" controlled by Al Qaeda and its allies. If increasingly plausible worst-case scenarios play out, Brand tersely observes, "we’re ants on a burning log."

His scary analysis is the setup for a hopeful, though controversial, message: All may still be well if we get really good at using tools many Greens love to hate cash advance payday loans. To wit: urbanization (which enables efficiencies of scale and lower per-capita use of resources), nuclear power (to displace coal’s heavy greenhouse emissions), biotech (to engender, among other things, biofuel-producing microbes and drought-resistant crops), and geoengineering (such as lofting megatons of smoky particulates into the stratosphere to block sunlight and cool the climate).

Brand’s case for parting ways with environmentalism’s old guard rests largely on surprising developments that, he freely acknowledges, have shown some of his former views were wrong. Who knew that the rise of developing-world megacities, with their sprawling slums, would defuse the population bomb? (In rural villages, Brand notes, "every additional child is an asset, but in the slum, every additional child is a liability, so the newly liberated women in town focus on education and opportunity — on fewer, higher-quality children.")

That the expected number of excess cancers from the Chernobyl nuclear disaster would now be less than 1% of initial projections, and that the Chernobyl area would be a uniquely biodiverse wildlife sanctuary teeming with rare species? That the widespread cultivation of bioengineered corn, once thought to kill monarch butterflies, appears to be greatly benefiting them?

Not surprisingly, Brand’s iconoclasm has heated up the blogosphere, and some deep-dyed Greens apparently feel the trailblazer whose whole-earth visions seeded the first Earth Day in 1970 is doing a Lieberman.

Wrong.

Brand has always been an Obama-like, big-picture pragmatist — his famous catalog’s supreme virtue was its usefulness. And while some of his positions cry out for debate — I’m not sure I’d trust a real god to attempt geoengineering, much less us fumbling, self-taught ones — no one has brought more breadth, clarity, and cogency to bear on the biggest issue of our time. At 70, environmentalism’s pithiest polemicist has outdone himself, giving us one of the most important green tracts since Silent Spring. Read it. 

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GMAC Inc., the auto and home lender bailed out twice by the U.S. government, received a third rescue package valued at $3.79 billion that gives taxpayers a majority stake in the Detroit-based company.

The infusion will bolster lending at GMAC as it absorbs $3.8 billion in new pretax charges and decides what to do with its loss-plagued home mortgage unit, according to statements from the agency and the company yesterday. The aid comes on top of about $13.5 billion previously earmarked for GMAC, which regulators have said is crucial to the U.S. auto industry.

Chief Executive Officer Michael Carpenter is struggling to return the lender to profitability amid losses at the Residential Capital mortgage unit, known as ResCap, which GMAC may close or sell. GMAC is the primary lender to General Motors Co. and Chrysler Group LLC, the automakers that went into bankruptcy during the recession.

“We needed the capital in this order of magnitude; we weren’t arguing for less,” Carpenter said in a phone interview. “As the business becomes proportionally more and more of an auto-finance business, one of the lowest-risk businesses there is, my hope is that the capital ratios we need will get relaxed over time.”

The rescue package calls for the Treasury to buy $2.54 billion of trust preferred securities that pay 8 percent, and $1.25 billion of mandatory convertible preferred stock, known as MCP, at 9 percent, according to the statements. The government also received warrants to buy more securities.

‘They Need GMAC’

“The Obama administration has decided to keep GM alive one way or the other and they need GMAC to do it,” said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland. The firm counts GMAC as a client. “To bail out the car companies you need to bail out the finance companies.”

The Treasury’s current holding of non-convertible preferred stock will be swapped for $5.25 billion of the new MCP, and $3 billion of Treasury’s existing MCP will be converted into common, GMAC said.

The conversion of preferred into common “somewhat deleveraged” the company, Carpenter said. When coupled with improved conditions at the mortgage operations, it “will improve access to the capital markets in the near term” and lead to a quicker repayment of government funds, he said.

GMAC Stakeholders

The U.S. stake will rise to 56.3 percent from 35.4 percent. The U.S. also controls General Motors, GMAC’s former parent, whose stake shrinks to 6.7 percent. The stake held by Cerberus Capital Management LP, the New York-based investment firm, falls to 14.9 percent from 22 percent. An independent trust for the benefit of GM holds about 9.9 percent, GMAC said. GMAC doesn’t have publicly traded shares.

“In May, the Treasury Department made a commitment to all institutions that engaged in the stress tests that we would ensure their capital needs are met,” Treasury Department spokesman Andrew Williams said in an interview. “We are making good on that promise.”

GMAC was the only company of 19 that underwent stress tests that wasn’t able to raise capital in the private sector, Williams said. Still, the Treasury said the aid was less than originally planned because restructurings at GM and Chrysler caused less disruption at GMAC than regulators expected. Tim Price, a partner at Cerberus, didn’t return a call for comment.

ResCap’s Fate

GMAC affirmed that it’s looking at “strategic alternatives” for ResCap, ranked among the nation’s 10 biggest home lenders and once one of the largest marketers of subprime mortgages. The parent company wrote down $2 billion in ResCap mortgage assets in preparation for selling them and set up a $500 million reserve tied to the servicing unit that does billing and record-keeping for home loans.

“There will be individual asset sales in the near future but whether some larger concept evolves is a matter of time,” Carpenter said. “We think ResCap and the mortgage business is stable and that we don’t have to do anything crazy. We have no urgency.”

GMAC is being approached “every day with interesting ideas” for the unit, Carpenter said. The shoring up of ResCap allows the government to keep a stake in a company making home loans, said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management, which owns GMAC bonds.

GMAC contributed $2.7 billion of capital to ResCap in the form of mortgage loans acquired from the Ally Bank unit, debt forgiveness and cash, according to the company statement. GMAC “does not expect to incur additional substantial losses from ResCap,” the company said.

Mortgage Assets

At the Ally unit, GMAC bought “certain higher-risk mortgage assets” at fair value of $1.4 billion, which triggered an estimated $1.3 billion pretax charge. Those assets were contributed to ResCap. GMAC also gave $1.3 billion of cash to Ally to maintain its capital, the statement said.

The infusion is the final dose of capital needed to close a shortfall found by Federal Reserve stress tests in May. GMAC asked the Treasury Department to delay providing the cash when Carpenter was named CEO, replacing Alvaro de Molina on Nov. 16. The deadline for meeting the requirements had been Nov. 9.

GMAC got $12.5 billion in two previous government bailouts and another almost $1 billion that was funneled through GM, which used it to invest in GMAC. The U.S. will name two additional board members in conjunction with its increased stake, according to the statements.

The latest capital infusion and restructuring weren’t enough to stabilize ResCap and assure a return to profitability, according to Moody’s Investors Service.

While the changes were positive, ResCap “has been unprofitable on a quarterly basis for three years, its liquidity position is tenuous, capital insufficient and franchise impaired,” Moody’s said in a statement. GMAC didn’t guarantee continued support for ResCap, and without such help, “we believe ResCap would eventually default,” Moody’s said.

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WASHINGTON–Home resales surged in the United States last month to the highest level in nearly three years, reflecting an extraordinary level of federal support that has pulled the housing market back from the worst downturn since the Great Depression.

Buyers were racing to complete their sales before the original expiration date of a tax credit for first-time buyers that was scheduled to expire Nov. 30. Last month, Congress extended the credit to ensure the market could sustain its recovery.

"Things are stabilizing," said Pete Flint, chief executive of real estate website trulia.com. "There is a significant amount of buyer interest out there.”

About two million homebuyers have taken advantage of the credit so far, the National Association of Realtors said. The group forecasts that another 2.4 million will use it by the middle of next year. First-time buyers made up about half of all transactions last month, driving sales up 44 per cent above last year’s levels, a record jump.

November’s sales rose 7.4 per cent to a seasonally adjusted annual rate of 6.54 million, from a downwardly revised pace of 6.09 million in October, the realtors group said. It was the highest level since February 2007. Sales had been expected to rise to an annual pace of 6.25 million, according to economists surveyed by Thomson Reuters.

Sales are now up 46 per cent from the bottom in January, but down 10 per cent from the peak more than four years ago. The inventory of unsold homes fell about 1 per cent to 3.5 million. That’s a healthy 6.5 month supply, the lowest level in three years.

The median sales price was $172,600 (U.S.), down 4.3 per cent from a year earlier, and up 0.2 per cent from October. Analysts said the new tax credit deadline means sales will drop during the winter months and recover in the spring.

Associated Press

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Dubai World’s debt problems are a wake-up call that the economic recovery is still fragile and that there are still risks, OECD Secretary General Angel Gurria told Reuters.

Gurria said the incident had reminded markets of growing debt concerns, something that should prompt governments to be cautious in withdrawing from large stimulus measures to boost growth after the worst global recession in decades.

Dubai spooked financial markets last week when it said two flagship firms, Dubai World and its Nakheel unit, planned to delay repaying billions of dollars in debts.

Dubai World “is a reminder of the fragility of the recovery process and that fact that it is still in its infancy and that there are still downside risks,” Gurria told Reuters during a summit of Ibero-American leaders in Portugal. “It’s a property development gone bad, but a big one.”

He said governments should “keep their guard up,” and err on the side of caution when deciding to cut stimulus packages.

“It’s better to stay a little longer than to withdraw too early,” Gurria said. “There is now also this parallel concern that debt is accumulating at a very fast speed and that obviously is a problem because markets are also getting very tense about that.”

Dubai has alerted markets to those risks in recent days as have growing budget deficits in some countries, such as Greece which saw a widening of its bond spreads last week.

Gurria said the downturn was taking its toll on balance sheets.

“So you are having a lot of pressure on many balance sheets because of market related portfolios, that are not subprime, they weren’t wrong in the beginning, but they are getting sour because of the economic situation in general,” he said.

Gurria also warned of the growing risks of the so-called carry trade, whereby investors borrow funds in a currency with low interest rates or countries such as the United States to finance investments in countries with higher-yielding assets like China, driving prices higher.

“There is a danger of creating a bubble, because if you have a very large flow into a relatively stable number of assets you create inflation in the prices that is not consistent with the real change in value of the assets,” he said.

He said assets such as Chinese stocks had risen much more than many other markets because of this process.

“You can create artificially high prices which can then with one piece of bad news or one movement in the exchange rate or interest rates suddenly burst, and that is when you have a disorderly adjustment,” Gurria said.

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On an overcast English morning, two women from middle England are out shopping. They duck first into the Gucci boutique, fingering discounted handbags and rifling through racks of last season’s fashion lineup. Dolce & Gabbana is next, followed by Armani.

The outlet boutiques — among 136 clustered along a cobblestone outdoor shopping center called Bicester (BIS-ter) Village about an hour’s drive from London — are mobbed with bargain-seekers even at an early hour.

"You get value for money here," says Ann Prentice, who pauses to chat only briefly before her friend hustles her off to Valentino. "My husband is in business, so it’s hard for us just now, but I don’t mind paying more for quality."

Luxury outlet malls are the one bright spot of brisk trade going into the holiday shopping season. In recent weeks, retailers have reported small but still rather anemic signs of recovery. Yet sales numbers show that consumers have been flocking to discount outlets all year long, despite the recession.

Value Retail, the London-based company that owns the largest string of luxury outlets in Europe, including Bicester Village, has seen sales rise 20% to just over 1 billion euro ($1.5 billion) in the first three quarters of this year compared with 2008. (Sales totals are for the nine cities where its Chic Outlet Shopping outlets are located, including Milan, Paris, Dublin, Munich, and Madrid.) Foot traffic also rose 10% in the third quarter to 6.5 million shoppers.

When sales are tabulated for the fourth quarter, the growth is expected to be off the charts given the almost complete retail freeze of the fourth quarter of 2008. That compares with predictions of flat or at most a 2% increase in spending across the retail sector over the holiday shopping period.

Value Retail, whose major investor also owns part of the sprawling Woodbury Common outlet mall outside of New York City, has seen its growth this year double the average over the past 14 years, when sales increased at a rate of about 10% annually, according to Scott Malkin, Value Retail’s chairman.

"It’s human nature to indulge," Malkin says. "I think we’ve gone away from ‘I need more for the sake of more and more,’ to people being more discerning in what they purchase."

That sentiment has benefited luxury outlets in a year when full-priced luxury sales have been forecast to fall as much as 10%, according to Bain & Co. consultants.

Rather than view outlet shopping as cannibalizing from their High Street or Madison Avenue sales, luxury retailers in fact have welcomed the opportunity to sell excess merchandise in a slow time, while reaching a separate segment of customers to whom they wouldn’t normally be able to sell.

"We’re a service to the brand," says Desirée Bollier, the CEO of Value Retail Management low rates payday advance. "The brands have a lot more stock they want to dispose of, elegantly. We’re a platform for them that is quality, with a customer that is aspirational."

These so-called "aspirational" customers — those who may not be as wealthy as the typical elite luxury buyer, but will still purchase a few high-end pieces — now make up 60% of luxury buyers overall, according to Bernstein Research, an arm of AllianceBernstein.

"Before the recession, we were nice to have," says Bollier, referring to luxury outlets. "With the recession we’re a must. Our customers are not your fashionistas. She’s not going to buy the ‘It’ bag, but she recognizes the quality of a timeless piece."

Still, some fashion-forward heavy hitters are among the recent shoppers at these outlet malls: Stars Elizabeth Hurley and Victoria Beckham have been spotted in Bicester Village recently. Over the summer, a Saudi princess arrived with a retinue of 70 people. Tipped off in advance, says Malkin, the luxury brands sent out the Arabic speakers from their stores in London for the day to accommodate the entourage.

Most of Value Retail’s shoppers make the outlets a day-trip destination from the cities they’re visiting, or if they’re local residents, they may drive an average of two to three hours to reach an outlet mall. Some of these customers feel too intimidated to walk into a full-priced luxury boutique for the first time, so buying an item at a discount outlet can build confidence and allow shoppers to trade up. Rather than look for a dress to wear for an upcoming Saturday night, for example, they’re shopping for more enduring or signature items — at discounts of up to 60%.

"We use the expression, ‘guilt-free shopping,’" Malkin says, a particularly important sentiment in a recession. "What we’ve seen in the last 18 months is that women will buy something at full price in the center of Paris or London or Madrid and tell people that they bought the item at one of our villages. It’s a ways of avoiding conflict, of not wanting to seem better off than their friends and create discomfort and guilt."

The hope, of course, is that aspirational customers will be so satisfied with the items they purchase that they will eventually trade up into becoming luxury customers themselves, paying full price.

"People nine months ago said luxury is finished," says Malkin. "That’s nonsense. There will always be luxury, just that the nature of it will always be evolving." 

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The Federal Reserve’s shield from congressional audits of interest-rate decisions took a blow from lawmakers who want to open the central bank’s books to greater congressional scrutiny.

The House Financial Services Committee yesterday advanced a proposal to remove a three-decade ban on audits of monetary policy and carry out an examination of the central bank. The plan was offered by Representative Ron Paul, a Republican from Texas who has called for the abolition of the Fed, and based on a bill with more than 300 co-sponsors.

Lawmakers say the Fed hasn’t adequately accounted for putting taxpayer funds at risk, including aid to companies such as Citigroup Inc. and American International Group Inc. Fed Chairman Ben S. Bernanke has opposed the Paul legislation, saying it may open the door to interference in monetary policy.

Yesterday’s vote is “probably not going to be helpful in terms of keeping inflation expectations low and supporting the dollar,” said Michael Feroli, a JPMorgan Chase & Co. economist in New York and former Fed researcher. The central bank “should do whatever it takes to stop this from going forward and eroding confidence in the Fed’s independence,” he said.

The broader bill on financial regulation is subject to a vote by the committee, then must be approved by the House and Senate and signed into law by President Barack Obama.

“This is the bill that would allow the people to win over the special interests,” Paul said during debate on the measures yesterday. “There is no doubt that the individuals opposing this amendment represent the secrecy of the Federal Reserve.” An audit “shouldn’t hurt them in any way,” he said.

‘May Be Revisited’

Barney Frank, the Massachusetts Democrat who chairs the committee and opposed the Paul measure, said the issue “may be revisited” when the legislation reaches the House floor.

“It’s going to be seen as weakening the independence of monetary policy with consequent negative implications,” Frank told reporters after the vote. “People are going to be worried about the impact on the dollar, on the interest rate.”

The dollar strengthened to $1.4925 per euro late yesterday from $1.4963. The dollar has weakened 6.5 percent against the euro this year.

Paul, who wrote a best-selling book this year titled “End the Fed,” said provisions in his amendment would limit interference in monetary policy. The measure, co-sponsored by Representative Alan Grayson, a Democrat from Florida, would exclude any unreleased transcripts or minutes of Fed policy meetings. It calls for an audit of the Fed and its 12 regional banks by the Government Accountability Office within a year after enactment.

Limited Audits

The committee voted first, 43-26, to substitute Paul’s proposal for a Democratic measure to retain the ban on audits of monetary policy while requiring more limited audits. About one- third of Democrats joined the unanimous Republicans on the vote. Then, in a voice vote, the committee attached the Paul measure to the broader bill.

Frank said he expects to finish the legislation in committee on Dec. 1, delaying a vote he had scheduled for yesterday until after lawmakers return from the Thanksgiving holiday. He supported a competing measure from Representative Mel Watt, a North Carolina Democrat, to retain the ban on auditing monetary policy.

“Perception is very important in monetary policy,” Frank said. He said he was concerned that “inflationary expectations will be given a boost if we adopt the Paul” measure.

The Fed’s powers and rate-setting independence are under threat on several fronts in Congress. Separately yesterday, the Senate Banking Committee began debate on legislation that would strip the Fed of bank-supervision powers and give lawmakers greater say in naming the officials who vote on monetary policy.

Lax Oversight

Paul and other lawmakers have accused the Fed of lax oversight of banks and failing to avert the financial crisis. He said Watt’s measure instead would put further restrictions on the power of the government to audit the Fed, contrary to its sponsor’s assertion.

“This actually takes away some auditing authority,” said Paul. “This amendment eliminates all the benefits that people see coming from” Paul’s legislation, he said.

Watt cautioned against succumbing to popular anger at the Fed during debate on the measures.

“Everybody would like to beat up on the Fed and call them the bad guys,” Watt said. “So if we make this decision on a political basis, I know what the result will be.”

Also yesterday, lawmakers attached, by voice vote, a separate Republican measure to audit all Fed emergency-loan actions “during the current economic crisis.” Legislators may need to work out how to combine the amendments when the bill goes to the House floor.

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Gold is soaring to record high prices, and guess who has the biggest stash?

The U.S. government.

The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world. With gold selling at about $1,100 an ounce, that means Uncle Sam is sitting on $288 billion worth of the shiny stuff.

Treasury’s gold sits in vaults across the country. It holds about 25,000 bars in a vault five floors down, 80 feet below street level, in the New York Federal Reserve in Manhattan. The majority of the nation’s gold reserves still reside in Ft. Knox in Kentucky.

But rather than sell it, the government is hanging onto its bullion.

So are other global central banks. In fact, as the dollar continues its downward spiral, many countries are even buying up gold.

Last week, the International Monetary Fund offered up 400 metric tons of gold, and the Reserve Bank of India bought 220 metric tons of it. Sri Lanka bought 5.3 metric tons in the auction as well. In the second quarter, central banks were net buyers of gold for the first time since 1997.

"Gold is gold," said Nathan Lewis, author of Gold: The Once and Future Money. "There’s no real change in gold’s value. Only the value of paper currency declines."

Gold has come in and out of fashion with investors over the years. In times of economic instability or inflation, gold demand and prices have trended higher. Despite wild price fluctuations over the years, gold has maintained its purchasing power for about the past 750 years.

"From the mid-14th century until now, you can draw a relative straight line in the purchasing power of gold, and every central banker in their heart knows that," said Judy Shelton, an economist and director of the National Endowment for Democracy. "Gold is universally recognized as a store of value. That’s important because it denotes price stability."

Gold had been the standard currency for international trade for centuries. In fact, the Federal Reserve vault in New York has compartments for different countries. When one country would trade with another, a "sitter" would simply move bars from one compartment to another, according to David Girardin, spokesman for the New York Fed.

Gold’s inherent value is buoying its resurgence in popularity. The comeback also raises important questions about the United States’ own reserve position and the government’s ability to maintain demand for U.S. Treasury bonds as the world catches the gold bug.

Why we’re sitting on it

Governments’ dependence on gold has waned over the years, but they still hold 848 million ounces of it, down 29% from the 1965 peak of 1.2 billion ounces, and just 10% from the 942 million ounces they held 50 years ago, according to the World Gold Council.

Curiously, Treasury still values its gold at $42.22 per ounce. Congress reached that figure in 1973, two years after the the post-World War II Bretton Woods gold standard, which had valued gold at $35 an ounce, was scrapped.

With gold selling at prices 26 times that amount, why doesn’t the Treasury, and by extension, the Fed, realize those gains on their balance sheets by displaying the market value of their holdings? Or, with the gold standard abandoned, why doesn’t the government sell off its reserves to put that money into the economy or pay off debt?

There are lots of reasons, ranging from the psychological to the practical.

"If we started selling gold from our official reserves, it would be recognized as a sign of weakness for the dollar," said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital. "America’s relatively large gold holdings provide some psychological benefit to our currency."

Many gold experts and economists agreed that even though the gold standard has been abandoned for nearly 40 years, the world is still cleaving to its gold because it is a tangible asset.

Another reason for Treasury to hold tight is gold’s fluctuating price. Just ask British Prime Minister Gordon Brown. When Brown was the nation’s chief finance minister a decade ago, he decided that gold had become relatively useless to the government — without the gold standard, it was just an inert metal, and it was expensive to store.

Brown sold off 400 tons, or 60% of the United Kingdom’s gold, between 1999 and 2002. Brown’s problem: Gold was selling at a record low inflation-adjusted average of $275 an ounce at the time. It turned out, had he waited 10 years, the U.K. would have made four times what it hauled in from the sale.

"Geithner doesn’t want to be the Treasury secretary that sells gold at $1,100 an ounce and next year it’s at $2,000," said Shelton.

Furthermore, a sale of all the country’s gold wouldn’t make much of an impact. With the nation’s annual deficit at $1.7 trillion, a $787 billion stimulus package and a $700 billion bank bailout, $300 billion is kind of puny in comparison.

"The Fed has plenty of tools to pump money into the economy; it doesn’t need to sell gold to do it," said Lyle Gramley, a former Fed governor. "The government has its gold by historic accident, but there’s no reason why they’d sell it — there’s no motivation."

But most of all, a sale of the government’s gold would be especially poorly timed now, since foreign central banks are lining up to add gold to their reserves. As a result, experts say a mass-sale of gold would mostly end up in other nation’s coffers.

That could spell disaster for the U.S. government, which is trying to finance its economic rescue packages by selling record amounts of debt to foreign countries in the form of Treasury securities. As gold holdings take up a larger percentage of foreign reserves, Treasury holdings could be reduced.

Shelton, who believes that paper currency should have ties to hard assets, said the resurgence of gold buying should be unsettling for the government. The trend indicates that some foreign countries would rather hold onto an inert metal than Treasurys that pay interest. Treasurys have long been viewed as a riskless asset, because they are tied to the dollar and are backed by the U.S. government.

"If the trend continues, that could reduce the demand for Treasury securities and bonds’ book value would go down," said Shelton.  

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Human Genome Sciences Inc said on Monday its experimental lupus drug Benlysta was successful in a second large clinical trial, paving the way for approval of the first new treatment for the disease in 50 years.

Results of the late-stage trial showed patients given a high dose of the drug, Benlysta, experienced a statistically significant improvement in symptoms compared with those taking a placebo.

Hopes for Benlysta have been growing since July, when it was shown to work in a first clinical trial to the surprise of many experts who had been skeptical, given the previously poor track record of new lupus treatments.

But to win approval from regulators, Human Genome and its partner GlaxoSmithKline Plc needed to have a second successful study result.

“This is a pivotal moment in lupus research,” said Margaret Dowd, president of the Lupus Research Institute, an organization that funds lupus research but did not fund Human Genome Science’s trial.

“It demonstrates the power of innovative science to drive discovery and achieve solid clinical results in the complex autoimmune disease of lupus.”

Panmure Gordon analyst Savvas Neophytou said the companies had struck gold with the latest results and predicted that registration of the drug would now be “routine,” adding the new blockbuster could be on the market by mid-2010.

Shares in Human Genome jumped 18 percent in early trading in Germany, while Glaxo stock was down 1 easy online payday loans.5 percent.

Glaxo and Human Genome, which will share profits from Benlysta on a 50-50 basis, said they planned to file for approval in the first quarter of next year.

$3 BILLION POTENTIAL

Assuming Benlysta now gets approved, Human Genome and Glaxo will have a drug worth as much as $3 billion a year, according to some analysts — nice for Glaxo, the world’s No. 2 drugmaker, and transformational for Human Genome, a small Rockville, Maryland-based company that has struggled in the shadows for years.

Data from a composite of three measures in the latest trial showed that after 52 weeks, 43.2 percent of patients taking 10 milligrams of Benlysta in combination with standard of care achieved an improvement in symptoms, with no significant worsening of disease in individual organs.

That compared to a figure of 33.8 percent for patients taking Benlysta in combination with a placebo.

The result met the main goal of the clinical trial.

Lupus causes the immune system to attack the body’s own tissue and organs, including the joints, kidneys, heart, lungs, brain, blood and skin. It can cause arthritis, kidney damage, chest pain and skin rash, among other disorders. 

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Last month, Missouri gambling regulators essentially put the President Casino’s license up for grabs.

Now the company that owns the casino is crying foul.

Pinnacle Entertainment has asked a state appeals court in Kansas City to overturn a ruling by the Missouri Gaming Commission that said Pinnacle must reapply for a license if it hopes to move the President or replace or repair the aging Admiral Riverboat on which it sits.

That ruling, Pinnacle argues in an appeal filed Thursday, essentially revokes the President’s license — one of just 13 allowed in the state — because it ties the casino to the Admiral, which is widely expected to fail its next Coast Guard inspection in July. Pinnacle would like the court to overturn the decision and give it time to fix the President.

It is the latest step in a long discussion over what to do with the casino, which Las Vegas-based Pinnacle bought for $45 million in 2006 as part of its development of Lumi