The Irish Independent reports that a €1,000 property tax on every home in the country is needed to turn the economy around, the country's top bankers said last night.

Senior Central Bank executives told the Irish Independent that the controversial property tax was badly needed to plug the Government's dwindling finances. It is understood the move would raise around €1.7bn for the Exchequer.

The Government is also being urged by its own highly influential economic advisers to bring in a property tax in order to close the yawning hole in the public finances.

Such a tax would heap further pressure on homeowners, who face a series of crippling tax hikes as the Government attempts to steer the country out of recession.

The return of domestic rates was signalled as government officials and union leaders continued their talks on taxation measures needed to salvage the economy last night.

Emerging from the talks, the head of the trade union movement, David Begg, said he was seeking a firm commitment that the higher band of tax would be raised to 48pc and for a tax on second homes. He also said unions wanted tax increases to be introduced before the Budget.

"It is significant that the brief of the Commission on Taxation to raise taxes has been changed in the framework document for talks, but we need some changes in tax this year," said Mr Begg.

"The tax base is far too narrow and, when property-related taxes are excluded, it is unsustainably narrowed."

Taoiseach Brian Cowen and Finance Minister Brian Lenihan gave their clearest signal yet of major tax hikes in the coming years, as they reiterated that spending cuts would not be enough to balance the books.

The Commission on Taxation is currently looking at all elements of the tax system, including property taxes, and will report back to Mr Lenihan later this year.

Gloomiest

As the Central Bank unveiled one of the gloomiest outlooks on the economy so far, it said a tax of €1,000 a year on homes could raise €1.7bn -- one third of the total seen as needed in permanent new taxes.

"The bank and the board of directors suggest such a tax is something that needs to be looked at," its senior economics executive, assistant director-general Tom O'Connell, said.

The head of the task force to oversee public spending cuts has also raised the issue.

Writing on a website, Colm McCarthy, the chief of the group dubbed "An Bord Snip Nua" said: "A further tax on second homes seems to be all the rage the last few days. I imagine the Commission on Taxation is thinking about the options for first homes."

A spokesman for Mr Lenihan last night said the commission "is considering all elements of the taxation system".

Mr Lenihan earlier said the Government would have to find another €4bn in cutbacks next year -- and some of this would come in the form of new or increased taxes.

"The first step towards that goal is the €2bn savings, the details of which will be announced next week. Next year, we need to make a further adjustment of €4bn and a proportion of that must come from tax," he said. "We must broaden our tax base."

Speaking in Switzerland, where he is meeting global leaders at the World Economic Forum, Mr Cowen agreed cuts alone would not go far enough. He pointed out that the work of the commission was looking at all forms of taxes.

In the ongoing talks with the social partners, the Government has agreed that whatever taxation measures are to be introduced will be informed by the "principles of fairness", with a higher proportion falling on higher incomes.

Mr Cowen was given a chilling warning yesterday of the grave consequences of failing to strike an economic rescue deal as it was revealed that 100,000 more people face the dole queues this year.

As Government talks with unions and employers continued, the pressure on Mr Cowen to secure a pact intensified as the Central Bank said that a successful outcome of negotiations was absolutely critical for the economy.

Alarming

The Central Bank also said the economy will shrink by an alarming 5pc this year.

The head of the bank said the country was experiencing "exceptionally difficult economic circumstances".

But governor John Hurley also warned it was "vital" that Ireland moved to correct the sizeable deficit in the public finances and added the public sector pay bill was "beyond the scope of current resources".

"It is necessary to consider how the tax base might be broadened. While this will require painful choices that will result in a short-term decline in living standards, it is also important that the measures taken are equitable," he said, in a statement accompanying the report.

In one of the most negative economic outlooks so far, the Central Bank predicted:

• unemployment will soar by at least 9.4pc this year.

• the state coffers will be €9.5bn in the red.

• just 22,000 new homes will be built this year.

Although out of the country, Mr Cowen is in "close contact" with his officials in Government Buildings who are assessing the progress in the talks.

He spoke regularly yesterday with department's secretary general, Dermot McCarthy, who is chairing the talks, which are expected to continue today and over the weekend.

The Irish Independent also reports that the Government's plans to rein in public spending and recapitalise the banks will play a key role in Standard & Poor's current review of its top-notch AAA rating for Ireland.

Trevor Cullinan, a senior sovereign ratings analyst at the agency, told the Irish Independent the Government's crunch talks with the social partners, aimed at yielding €2bn of savings, "gives us a good indication that it means business".

"That on its own is a very good indication of the Government's intention to improve the public finances," he said. "However, we hope to see a comprehensive list of measures. The more direction the Government can give, the better."

Mr Cullinan said the success of the Government's plan to recapitalise the banking system would also be pivotal to the determination. S&P's base-case estimate is that Irish lenders need at least €8bn of fresh capital, equivalent to about 4pc of GDP, with its stress-test scenario pointing towards a requirement of €15bn.

Central Bank assistant director general Tom O'Connell said yesterday he believed doubts about Ireland's credit rating were due to worries about whether the country could cope with the scale of the budget deficit and possible bank losses.

He said it is "possible" Ireland's credit rating may be cut if the widening budget deficit is not tackled. "If we don't come up to scratch, there is a fair chance we could suffer the consequences," he said.

Negative

There is concern that Ireland could become the next sovereign rating to suffer at the hands of S&P, after the influential agency downgraded its stance on Greece, Portugal and Spain in recent weeks. Earlier this month, S&P revised its outlook on Ireland's triple-A rating to "negative". Rival agency Fitch last week affirmed its AAA view on Ireland.

In its latest quarterly bulletin, the Central Bank forecast yesterday that Ireland's budget deficit would hit 9.5pc of gross domestic product (GDP) this year. The State faces an uphill battle to bring it back to the European Union limit or 3pc.

"People want to see how we are going to handle this. A credible plan from the Government to deal with these challenges could make quite a difference here," said Mr O'Connell. The country would be helped by low levels of government debt, though the bank sees this rising from 41pc of GDP last year to 53pc this year.

Meanwhile, the Department of Finance is continuing talks with Allied Irish Banks and Bank of Ireland about its plans to recapitalise them. The consensus view among observers is that the Government will now buy about €3bn of preference shares in each.

It previously planned to pump €2bn of National Pension Reserve Fund money into both AIB and BoI, before allowing the duo out into the market to raise a further €1bn over the coming months. However, this unravelled as their shares collapsed last week following the emergency nationalisation of Anglo Irish Bank.

The Government is also mulling setting up a "bad bank" to absorb toxic property development loans in the banking system, or launching an insurance scheme to tackle the issue.

Top executives at AIB and BoI are understood to be keener on the insurance solution in the belief they can still manage their spiralling loans through the downturn.

AIB has a €39.4bn property and construction loan book in Ireland and the UK, of which €20.2bn is exposed to commercial and residential development. BoI has a €38bn property and construction portfolio, with loans for development and landbanks of €13bn.

The Irish Times reports that the Central Bank has advised the Government to consider a tax on residential property.

The assistant director of the bank, Tom O’Connell, said yesterday at the launch of the bank’s first bulletin of the year that a residential property tax should be one of the options considered. Mr O’Connell said a €1,000 annual tax on the 1.7 million dwellings in the State would yield €1.7 billion per year.

“Ireland is an outlier internationally in not applying annual charges to residential property holdings . . . We don’t have that sort of revenue at the moment and the bank and the board would suggest that needs looking at,” he said.

The Central Bank advice came as tax emerges as a key issue in the social partnership talks on the economic recovery plan.

Speaking in Davos where he was making a brief visit to the World Economic Forum, Taoiseach Brian Cowen declined to say how the Government might broaden the tax base but said the discussions in Dublin with the social partners were “going well”.

“The engagement is sincere, deep and constant. We will keep at it,” said Mr Cowen.

The Taoiseach said the reduction of more than €8 billion in tax revenue last year meant that savings on State spending and public service reforms were required. “It will also require some taxation measures, that is clear, but we will make those decisions at the appropriate time.”

The general secretary of the Irish Congress of Trade Unions, David Begg, last night said unions would have to be able to show “some progress immediately” in relation to tax as part of the social partners’ talks with the Government.

He also asked why, if the current tax system was sufficiently progressive, the Government had introduced a new 1 per cent levy in the budget rather than increasing income tax. He said the Government’s own argument was that this was the only way it could be sure of capturing those at the upper end.

Minister for Finance Brian Lenihan told the Dáil earlier yesterday that a broadening of the tax base is on the agenda but he defended the current income tax system as fair and progressive.

Mr Lenihan pointed out the most recent data from the Revenue Commissioners showed that the top 20 per cent of income earners paid 77 per cent of all income tax, the top 12.5 per cent paid two-thirds of the total and the top 6.5 per cent of earners paid half of all income tax.

At the other end of the income scale, 38 per cent of income earners were exempt from income tax. “That data shows how progressive the income tax system in the State is,” said Mr Lenihan, who also reaffirmed the Government’s commitment to the 12.5 per cent rate of corporation tax.

His comments were echoed by Minister for Justice Dermot Ahern. Speaking in Templemore, Mr Ahern said: “The very stark figures in our society [indicate] that 38 per cent of the income earners in Ireland don’t pay a bob of tax, when 50 per cent of all tax is taken from only 6.5 per cent of the people . . . We have to be very careful in relation to putting tax on labour. Historically that has shown that it does depress the economy. So we are looking at other areas first.”

At the Central Bank bulletin launch, Mr O’Connell also said the Government should consider charging the public for services such as water, third-level education and free travel for pensioners.

“Within the current budget, the largest item of expenditure, the public-sector pay bill, must be addressed as, given the further deterioration of the fiscal position, the ability to fund it is beyond the scope of current resources,” he said.

The bank predicted yesterday the gross national product would shrink by 4.7 per cent next year.

Professor Philip Lane of TCD and founder of The Irish Economy blog writes in the Irish Times today: The EMU framework has its flaws, but it is not responsible for the financial crisis

The current crisis has re-opened a debate about the pros and cons of EMU membership. Indeed, some have suggested that vulnerable member countries might even consider leaving the euro zone.

However, it would be a mistake to view the problems facing Ireland as intrinsically linked to EMU membership. Equally, it would be a serious misjudgment to believe that abandoning the euro would be helpful in promoting economic recovery.

In relation to the first point, the analytical issue here is to identify the relevant counterfactual: what would have happened had Ireland opted not to enter EMU? It is probable that a significant housing boom would still have occurred.

The world economy experienced a major liquidity expansion over the last decade, which stimulated a credit boom in quite a number of peripheral European countries (including both members and non-members of the euro area).

With the exception of the UK, the impact was smaller in the more advanced European economies (including both members and non-members of the euro area), due both to a longer history of low interest rates and tighter regulation of their banking systems.

Even if Ireland had been able to raise interest rates, policy rates have relatively limited impact on the housing market if expectations of price appreciation grip investors. Moreover, to the extent that high levels of immigration helped to fuel perceptions of strong fundamentals in the housing market, that factor had nothing to do with EMU: the two other countries that opened up their labour markets to workers from the new member states were not participants in EMU (Sweden and the UK).

Accordingly, if the relevant comparison set is composed of other non-advanced European countries (in terms of income levels in the late 1990s), it is not clear that EMU was a fundamental factor in driving the Irish credit boom.

Rather, the key differentiating factors include the quality of banking regulation and the probity of fiscal policy. Countries (whether members of EMU or not) that maintained tougher control over banking practices and countries that ran more counter-cyclical fiscal policies are now better positioned than countries that ran less prudent policies.

At the same time, the crisis has underlined the incomplete nature of the EMU institutional framework.

In particular, the rapid growth of cross-border inter-bank lending among euro area countries was not sufficiently matched by a greater level of effective co-operation among national banking regulators.

A main reform priority now is to establish a European-wide regulatory framework which recognises that the largest banks require supervision by a trans-national authority.

Moreover, national governments need to agree burden-sharing rules for the future, to avoid a recurrence of the co-ordination problems that have been evident in resolving the current banking crisis.

In addition, national governments must accept that the European banking system would be more stable if a small number of tightly-regulated pan-European banks were allowed to emerge from a consolidating process of cross-border mergers and acquisitions.

Such geographically diversified banks would be less exposed to the damage caused by region-specific property booms and busts and, if properly supervised, have the potential to provide a more stable source of funding for European firms and households.

A second key reform that would make EMU membership less stressful is for national governments to establish fiscal procedures that would avoid damaging episodes of pro-cyclical budgetary excesses.

Since each member country has a different political tradition and faces different economic circumstances, it is inevitable that the Stability and Growth Pact can provide only general guidelines.

National governments must recognise the need to develop procedures which enable sufficiently large surpluses to be accumulated during the good times.

This allows for fiscal easing during the downturns.

A third fundamental principle is that nominal wages must be allowed to fall when a member country suffers a negative shock that drives up unemployment.

Since the ECB is committed to keeping area-wide inflation low at around 2 per cent, the adjustment of relative wage levels requires struggling economies to accept the occasional decline in nominal wages.

The alternative is a prolonged phase of high unemployment that only gradually achieves adjustment through a long period of wage stagnation.

While EMU membership does require national governments to maintain discipline over budgets, the banks and the labour market, the benefits from the elimination of currency risk have been shown to be immense during the current crisis.

A country that seriously entertained thoughts of leaving the euro area would be hammered by capital flight and steep increases in risk premia.

While euro sceptics in Britain and US may like to indulge idle thoughts about the break-up of the euro area, the likelihood of this scenario is truly remote.

The Irish Examiner reports that nine out of 10 Dublin firms are freezing or cutting pay while half of Cork companies expect to reduce staff levels by up to 20% this year.

Separate surveys released by Dublin and Cork chambers found businesses in the cities are struggling to survive in the economic environment.

Both said it is time the government did something to help the situation.

Dublin chamber chief executive, Gina Quinn said businesses are focusing on their labour costs by freezing or cutting wages in an attempt to remain competitive.

“Pay freezes and cuts are across the board. If we are to restore confidence in the economy, then Government must do likewise,” she said.

A survey of Dublin chamber members over the past week found that a third of companies are cutting top-level salaries by a tenth or more.

Meanwhile two-thirds of 256 Cork businesses surveyed said turnover has plummeted by a fifth over the last 12 months.

Cork chamber president Joe Gantly said last year was not a good one for businesses in the Cork region.

“It is clear that the economic situation is having a detrimental effect on consumer confidence and consumer spending, with the loss of jobs being compounded significantly by the downturn in consumer spending,” he said.

“The restricted access to credit being felt across companies of all sizes throughout the country and Cork region is threatening their future viability.

“The knock-on effect caused by credit restrictions to respondents’ clients, in addition to respondents’ individual businesses was very much to the fore of the research findings in terms of its significant impact on cash-flow,” said Mr Gantly.

On a positive note more than half are confident about their future survival although generating business was cited as the biggest challenge being faced.

Managing cash-flow was identified as the second major concern by the majority of companies.

“Worryingly, the resultant action required by companies to deal with these challenges, indicates redundancies, closures and further lay-offs,” said Mr Gantly.

The chamber said the government needs to immediately postpone the National Pay Agreement, implement public sector reform and restore competitiveness.

“As highlighted by the survey results, we are now at a critical stage in the economy and it is imperative that Government demonstrates leadership and innovation by developing a cohesive recovery strategy to restore our competitiveness,” said Mr Gantly.

“Urgency is a prerogative to re-emerge from these challenging times and we need something concrete to convince the financial markets that we can trade our way out of the current difficulties.”

The Financial Times reports that Wen Jiabao, China’s premier, on Thursday mounted a vigorous defence of the country’s exchange rate policy, in Beijing’s highest level response to criticism from Barack Obama’s US administration.

Speaking in Berlin after talks with Angela Merkel, Germany’s chancellor, he insisted that Beijing’s policy on the renminbi was “orientated towards market needs” and “flexible”.

Mr Wen’s defence of China’s currency regime followed last week’s decision by Tim Geithner, the US Treasury secretary, to break a long-standing taboo and accuse China of manipulating its currency to support exports.

The Chinese premier, who is on a European tour this week, said that China would keep the renminbi at a “reasonable and balanced level”.

Likening strong fluctuations in global currencies to a rollercoaster ride, Mr Wen said China was not to blame for that volatility.

Mr Wen and Ms Merkel pledged to work closely together to reform the global financial system and rejected protectionism ”of any kind”.

Ms Merkel signalled a commitment to involving developing countries including China more closely in international efforts to find a solution to the global financial crisis. “Most questions can no longer be solved by G8 nations alone,” she said.

As the world’s two biggest goods exporters, Germany and China are vulnerable to the slowdown in global demand.

The two leaders pledged to enhance trade links. Mr Wen said he had no desire to run a trade surplus and would discuss ways that Chinese companies could purchase more German technology.

Michael Glos, Germany’s economics minister, later said that it remained open to investment from abroad, including from sovereign wealth funds such as China’s $200bn fund, which has attracted controversy with some of its investments abroad.

Raising the sensitive issue of Tibet, Ms Merkel urged China to hold talks with the Dalai Lama, the exiled spiritual leader.

The FT also reports that Alistair Darling paved the way on Thursday for Britain to start creating money to fight the recession – agreeing that the Bank of England should remain in the driving seat in any radical new phase of monetary policy.

Some City analysts believe that quantitative easing – a policy often described as “printing money” – could start within months, as the Bank exhausts its ability to cut interest rates to stimulate the economy.

The rate currently stands at 1.5 per cent.

In an exchange of letters on Thursday with Mervyn King, the Bank’s governor, the chancellor agreed a framework for the operation of such policy, under which the Bank would create money on its balance sheet to purchase assets.

Mr King has fought to ensure that in the event of the Bank having to create money, its monetary policy committee should maintain a high level of independence – even though the credit risk and fiscal implications of such a policy will fall on the taxpayer.

Mr Darling said on Thursday that it would be for the MPC to request the new powers to create money. Although he would retain a veto, his officials say that, in practice, it would never be exercised.

The chancellor said he would keep parliament informed and would tell MPs if he had agreed that the Bank could expand its fund for the purchase of assets.

The Conservatives argue that “printing money” is the ultimate expression of economic failure.

In his letter, Mr King gave the impression that he expected Mr Darling’s consent for quantitative easing to be forthcoming.

“I would inform you so that you could authorise the changes to the scale and operation of the facility that might be required,” he said.

Separately, the letter exchange set out the range of assets the Bank was expected to buy under a £50bn ($71bn) asset purchase scheme.

This programme to inject liquidity into the economy will not initially increase the money supply because it will be financed by the issuance of government bills.

Mr King made clear that the Bank would purchase a wide range of assets, including corporate bonds that were rated much lower than the top triple A rating but still qualified as investment grade.

This took some economists by surprise, as the Treasury had indicated that only assets of “high quality” would be purchased.

The Bank will publish details of the operation next week. However, it is expected that the facility will focus on the corporate sector and is unlikely to involve the purchase of securities backed by home mortgages.

Philip Shaw, an economist at Investec Securities, noted that the size of the asset purchase programme could have a significant effect on bond prices. He estimated that investment-grade sterling bonds totalled £325bn, allowing the Bank to purchase almost a fifth of all outstanding securities.

The New York Times reports that President Obama branded Wall Street bankers “shameful” on Thursday for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out some of the nation’s most prominent financial institutions.

“There will be time for them to make profits, and there will be time for them to get bonuses,” Mr. Obama said during an appearance in the Oval Office with Treasury Secretary Timothy F. Geithner. “Now’s not that time. And that’s a message that I intend to send directly to them, I expect Secretary Geithner to send to them.”

It was a pointed — if calculated — flash of anger from the president, who frequently railed against excesses in executive compensation on the campaign trail. He struck his populist tone as he confronted the possibility of having to ask Congress for additional large sums of money, beyond the $700 billion already authorized, to prop up the financial system, even as he pushes Congress to move quickly on a separate economic stimulus package that could cost taxpayers as much as $900 billion.

This week alone, American companies reported as many as 65,000 job cuts, and public anger is rising over reports of profligate spending by banks and investment firms that are receiving help from the $700 billion bailout fund. About half of that money is still available, but the new administration has yet to announce how it will use it, and many analysts think it will take far more to stabilize the banking system.

Should Mr. Obama have to go to Congress to seek more money for the bailout fund to avert the failure of more banks, he would most likely encounter opposition within both parties and demands for tighter restrictions on pay for executives of institutions that receive government assistance.

Mr. Geithner has already signaled a willingness to impose stricter compensation limits as part of a revamped approach to dealing with the banking crisis, but with his strong words on Thursday, Mr. Obama seemed intent on reassuring Congress and the public that he would step up the pressure on bankers before granting them additional assistance.

Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008, less than for the previous several years but the same level of bonuses as they received in 2004, when times were flush.

“That is the height of irresponsibility,” Mr. Obama said. “It is shameful. And part of what we’re going to need is for the folks on Wall Street who are asking for help to show some restraint and show some discipline and show some sense of responsibility.”

The Obama administration and lawmakers have begun to consider ways to control executive pay; the bailout fund, known as the Troubled Asset Relief Program, or TARP, would be the main vehicle for exerting such control. The administration of former President George W. Bush issued guidelines last October to try to control executive pay at companies receiving government help, but so far they have done little to curb large salaries.

During his confirmation hearings, Mr. Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid.

Some lawmakers, meanwhile, have said they are considering so-called “clawback” provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.

In the meantime, public outrage is already forcing some companies to rein in their lavish spending. John A. Thain, the former Merrill Lynch executive who was forced out of Bank of America, said this week he would reimburse Bank of America for an expensive renovation of his office that included an $87,000 area rug and $35,000 commode.

But it took the urging of the Obama administration to force Citigroup, which received an infusion of taxpayer funds last year, to abandon plans to buy a $50 million corporate jet. On Thursday, Mr. Obama made reference to the jet, without singling out Citigroup by name; his remarks came one day after the president met at the White House with business leaders, including Richard D. Parsons, the new chairman of Citigroup.

On Capitol Hill, Senator Christopher J. Dodd of Connecticut, the chairman of the Senate Banking Committee, issued his own warning on Thursday, saying companies would be summoned to testify if taxpayer money was involved.

“Whether it was used directly or indirectly, this infuriates the American people and rightly so,” Mr. Dodd said. “So I say to anyone else who does it, if you do it, I’m going to bring you before the committee.”

There is also political pressure to rein in pay in industries beyond banks and investment firms. The pressure reflects the substantial disparities between pay increases for senior executives, the low rate of wage growth for workers and the frequent disconnect between compensation and the long-term strategic success or failure of corporations.

Mr. Obama’s message on Thursday was reinforced by Vice President Joseph R. Biden Jr., who pledged in an interview with CNBC and The New York Times that the government would spend the remaining $350 billion of the troubled assets money “wisely and prudently and transparently.”

Mr. Biden said that he, like the president, was outraged by reports of large bonuses going to Wall Street executives.

“I’d like to throw these guys in the brig,” he said. “They’re thinking the same old thing that got us here, greed. They’re thinking, ‘Take care of me.’  ”

The NYT also reports even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.

Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.

“The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

Mr. Zedillo said that Washington, unlike most other countries, had the option of simply printing more money, because the dollar was a reserve currency for the rest of the world.

Over the long run, that could force long-term interest rates higher and drive down the value of the dollar, undermining the benefits that come with its special status.

Until now, most fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is also in the midst of a sizable bank bailout. That recently forced the British pound to a 23-year low against the dollar.

While the dollar’s status as refuge in a time of turmoil should prevent that kind of sell-off for now, a number of financial specialists warned that if fundamental factors like the lack of American savings and bloated budget deficits did not change, the dollar could eventually fall sharply .

“There aren’t that many safe havens,” said Alan S. Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explaining why the dollar’s status as a reserve currency is unlikely to be threatened.

Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets,” Mr. Blinder said.

While the focus in Washington has been on putting together a stimulus package that will attract broader political support when it comes up for a vote in the Senate, here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.

The stimulus was approved Wednesday by the House without Republican support, and could grow larger — mostly likely with additional tax cuts — to attract a bipartisan coalition.

American officials maintain they are aware of the challenge. A top White House adviser, Valerie Jarrett, promised in Davos on Thursday that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”

To be sure, Congress and the White House will ultimately need to refill the government’s coffers, but how they might do that is barely on the radar screen in Washington at this point.

“Even before Obama walked through the White House door, there were plans for $1 trillion of new debt,” said Niall Ferguson, a Harvard historian who has studied borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.

“You either crowd out other borrowers or you print money,” Mr. Ferguson added. “There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long-term.”

Mr. Ferguson was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of American debt at all levels, from homeowners to Wall Street banks.

“This is a crisis of excessive debt, which reached 355 percent of American gross domestic product,” he said. “It cannot be solved with more debt.”

While Mr. Ferguson is a skeptic of the Keynesian thinking behind President Obama’s plan — rather than borrowing and spending to stimulate the economy, he favors corporate tax cuts — even supporters of the plan like Mr. Zedillo and Stephen Roach of Morgan Stanley have called on the White House to quickly address how it will pay for the spending in the long-term.

“It’s huge,” Mr. Roach, the chairman of Morgan Stanley Asia, said. “President Obama has now laid out a scenario of multiyear, trillion-dollar deficits.”

The stimulus is widely expected to pass, but once it does, Mr. Roach said the focus would shift to “who foots the bill and what is the exit strategy. We don’t have the answer to either question.”

Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.

“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”