Daily Digest

Daily Digest 12/13 - Charting US Fiscal Catastrophe, Ban of Wall Street Bonuses Favored, Gold Cimbs Higher

Monday, December 13, 2010, 12:00 PM
  • The Eurozone Is In Bad Need Of An Undertaker
  • Charting The US Fiscal Catastrophe
  • US Stocks Open Higher After China Chooses Not To Raise Rates
  • Stocks Rise, Bonds Fall Ahead Of Senate Tax Vote
  • Banning Big Wall Street Bonuses Favored by 70% of Americans
  • Gold Climbs After China Refrains From Boosting Borrowing Costs
  • Administrator of BP Fund Offers Bonuses to Spill Victims Who Bypass Suits

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Economy

The Eurozone Is In Bad Need Of An Undertaker (pinecarr)



There will be no Eurobond, no increases in the EU’s €440bn (£368bn) rescue fund, and no mass purchases of Spanish and Italian bonds by the ECB. Nothing. The system is politically and constitutionally paralysed. Spain and Portugal will be left nakedly exposed before their funding crunch in January. It is entirely predictable that Angela Merkel and Nicolas Sarkozy would move so quickly to shoot down last week’s Eurobond proposal, issuing pre-emptive warning before this week’s EU summit that they will not accept “a bundling together of all Europe’s debts”.

Charting The US Fiscal Catastrophe (pinecarr)



With little fanfare, the November budget deficit of $150.4 billion was reported, which happened to be the worst fiscal November in the history of the US, and just out of the top 10 of worst deficit months ever, including the traditionally weak seasonal months of December, April and September (indicatively, the worst deficit month was the February 2010 $221 billion). The deficit was a major surprise to all those who had expected a pick up in income tax revenues. And as the charts below demonstrate, while there was indeed a modest pick up in tax collections, it was nowhere near enough to offset the surge in government outlays (even with interest payments still at near record low levels). What was also not broadly appreciated is that the cumulative debt issuance over deficit funding has hit a new all time high of $1,735 billion since our October 2006 starting point (4 fiscal years ago). And what is a bigger concern, is that the debt issuance continues to remain at almost exactly 50% over the deficit.

US Stocks Open Higher After China Chooses Not To Raise Rates



The Dow Jones Industrial Average rose 10 points, or 0.1%, to 11421. Alcoa led the blue-chip index's gain, rising 1.3%, while Cisco Systems rose 1% and Chevron added 0.9%. General Electric shares slipped 0.8% after the conglomerate announced it will offer $1.3 billion for Wellstream Holdings, a maker of flexible pipeline products for the oil and gas industry. The move fits with GE's strategy to expand its industrial businesses with acquisitions. Wellstream's board of directors said it will recommend shareholders accept the deal. The technology-oriented Nasdaq Composite added 0.01% to 2638 after closing Friday at its highest level since December 2007. The Standard & Poor's 500 index gained 0.2% to 1243, led by the materials and energy sectors.

Stocks Rise, Bonds Fall Ahead Of Senate Tax Vote



The tax cut compromise brokered by the White House and Congressional Republicans was scheduled for its first vote in the Senate on Monday afternoon. Lawmakers expect it to pass easily. If enacted, the package will extend tax cuts passed during the Bush administration for all income levels for another two years. It will also extend unemployment benefits and put in place a one-year reduction in Social Security taxes.

Banning Big Wall Street Bonuses Favored by 70% of Americans



With U.S. unemployment at 9.8 percent, resentment of bonuses and banking profits unites Americans across political, gender, age and income groups. Among Republicans, who generally are skeptical of business regulation, 76 percent support a government ban on big bonuses to bailout recipients, that’s higher than backing among Democrats or independents. JPMorgan Chase & Co. Chairman and Chief Executive Officer Jamie Dimon got a bonus package for 2009 valued at $17 million and Goldman Sachs Group Inc.’s Chairman and CEO Lloyd Blankfein received a $9 million all-stock bonus for last year, down from his Wall Street record $67.9 million in 2007.

Gold Climbs After China Refrains From Boosting Borrowing Costs



Last week, commodities dropped on bets that China would increase interest rates over the weekend, damping consumption of raw materials. Before today, gold rose 26 percent this year, reaching a record $1,432.50 an ounce on Dec. 7. Copper jumped to a record in London. “The world was pricing in an interest-rate hike, and it didn’t happen, so the industrial metals are pulling gold higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.

Administrator of BP Fund Offers Bonuses to Spill Victims Who Bypass Suits



People who have already received emergency payments and do not intend to ask for more money from the fund can sign the final release can get paid for doing so — individuals will receive $5,000 within 14 days of signing, Mr. Feinberg said, and businesses will get $25,000. “Every single claimant will have a choice,” he said. “They ought to fit the choice to their own situation.”

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

18 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

"In a research paper published today, the Centre for Economics and Business Research (CEBR) claims that keeping "the euro alive will require cuts in living standards greater than the UK faced in the Second World War" for weaker eurozone members.

"There is no modern history of falling living standards in peacetime on the scale necessary to keep the euro in its current form. This is why I think there is at best a one-in-five chance that the euro will survive as it is," Douglas McWilliams, CEBR chief executive, said. "

"Municipalities around the state, including Greene County, will have to reduce spending because of a state budget deficit.

The latest estimate shows that the state will have to make about $700 million in cuts, said Budget Director Linda Luebbering. That is the difference between stimulus money awarded to the state last year and the amount expected for the next fiscal year."

"Two professors of finance are giving a sharp rap on the knuckles to Philadelphia, Boston, Chicago and other major cities.

Their warning: Better fix your pension problems fast.

An analysis by Robert Novy-Marx of the University of Rochester and Joshua Rauh of the Kellogg School of Management finds that public pension plans for America's 50 biggest cities and counties are underfunded by $382 billion--or $14,000 for every household in those same cities. Some of the biggest plans may run out of money to pay promised benefits in as little as five to eight years. "

"Crude advanced after a government report showed Chinese refineries ran at record rates last month, signaling oil demand will continue to increase in the world’s largest energy user. "

"China, which last year overtook the U.S. as the world’s biggest energy user, boosted net imports of crude by 26 percent in November from a month earlier as refineries ramped up processing rates to ease a diesel shortage. Net purchases were 20.3 million metric tons, or 5 million barrels a day, the highest since September’s record 22.9 million tons, data from the Beijing-based General Administration of Customs showed.

Refining Rates

Refineries processed 36.65 million metric tons in November, or 8.96 million barrels a day. That exceeded the record of 8.76 million barrels a day in October.

Crude also gained as China held off raising interest rates, opting to increase reserve requirements for the country’s banks for the third time in five weeks. Chinese inflation accelerated to 5.1 percent in November, the fastest pace in 28 months."

"DETROIT—More than 20% of Detroit's 139 square miles could go without key municipal services under a new plan being developed for the city, with as few as seven neighborhoods seen as meriting the city's full resources."

..........................5A) Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011 (Mish)

"LONDON (MarketWatch) -- The European Central Bank stepped up its government bond purchases to 2.667 billion euros ($3.56 billion)in the week ended Dec.10 after settling 1.965 billion euros the previous week. The ECB on Dec. 2 promised to keep its bond-purchasing program active in an an effort to calm markets nervous about European governments' ability to reduce their budget deficit. The ECB on Monday said it has bought a total of 72 billion euros in government bonds since May."

  • Other news, headlines and opinion:

Shares Rise, Commodities Jump as China Avoids Rate Increase; Bonds Decline

Alarm over rise in US bond yields

Bank of Canada says risks from household debt "elevated" and rising

Moody's Sees Spanish Bank Loan Losses Up, More Capital Needed

Failed Eurobond Means Tripling of Domestic Sales: Russia Credit

Budget deficit forecast to be “at the outer limit,” says Key (New Zealand)

EU Should Pull Financial Support If Targets Missed, OECD Says

Jobs threatened as end nears for stimulus (Texas)

John Williams Hyperinflation Will Start in the Next Couple Months.flv (Video)

HK gold exchange to launch renminbi contract

Shocking NIA Interview with Bill Murphy (Gold and silver manipulation)

Ratings by Moody's, Fitch, S&P Ruled to Be Protected Speech

Florida Governor Declares Emergency for Farm Crops on Cold

bandvbandv's picture
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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

John Williams interview hyper-inflation 2011 lets hope hes wrong

 

http://vinceseconomicblog.wordpress.com/2010/12/13/john-williams-hyper-i...

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

Euro has 'one in five chance' of collapse, warns CEBR

If I'm not mistaken this should be: "Euro has 'one in five chance' of survival, warns CEBR

Quite a difference...

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...
saxplayer00o1 wrote:

"In a research paper published today, the Centre for Economics and Business Research (CEBR) claims that keeping "the euro alive will require cuts in living standards greater than the UK faced in the Second World War" for weaker eurozone members.

"There is no modern history of falling living standards in peacetime on the scale necessary to keep the euro in its current form. This is why I think there is at best a one-in-five chance that the euro will survive as it is," Douglas McWilliams, CEBR chief executive, said. "

The title says "one in five chance of collapse".

The quote of McWilliams says "one-in-five chance that the euro will survive"

I think there's a difference... ;)

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

 

From http://www.deflationite.com/blog/?p=282

We forget that we live in a truly globalised economy now. Moreso than at any time in history. Trouble is, most articles you read refer to one country, for example, ‘quantitative easing (QE) will or will not cause inflation in the US’, these articles miss the bigger picture. Capital flows around the world mean that QE in the United States not only has consequences for the United States. If money is printed in the U.S. and is not needed there it will go somewhere else, the Fed know this. Money printed in the U.S. will cause inflationary problems elsewhere not in the U.S. to the benefit of the U.S. as long as they are the base currency. Too often articles treat the U.S. as a closed economy, it is not a closed economy.

And post from http://www.deflationite.com/blog/?p=272   (hmmm  seems to have edited the link out..Must be a one link per post thing. go to www dot deflationite dot com forward slash blog forward slash ?p=272 ... Just change the last 3 characters of the top link from 282 to 272) with title

Hyperinflation Will Not Happen In the United States

I have been reading predictions of hyperinflation in the United States for such a long time I finally have to voice my opinion. Hyperinflation will not happen in the U.S. Even the highest estimates of quantitative easing made by market pundits has no way of causing hyperinflation within the U.S. The United States is currently a depressed economy by any measure. Unemployment measured in U6 terms, real terms, is upwards of 16%, there is no shying away from that.

Politicians can choose to pump printed money at the problem but they are like Liza trying to stop the hole in the bucket. You can keep filling it but the water (money) is going elsewhere.

The money has been going to one main place and one main place only. China.

This money does not hide, it does not go away, it has to be used somewhere.

So what happens, the economy is growing but is still immature in terms of capital. These huge inflows of money have got limited areas where they can go.

So inevitably they just flow to the areas that are available.

In China’s case it has been property.

The money flowing out of western economies had to go somewhere and it went into Chinese property ‘investment’.

The property bubble is already near bursting in China.

The Chinese government does not want it to burst.

Yet more and more money keeps pouring into the country.

What to do with it?

Well, what will happen eventually is this money is all going to spill into non property areas and cause inflation in nonproperty parts of the economy as well.

The money will keep flowing, because the western countries will still keep printing money, trying to devalue against each other to cheaply get out of their debt hell holes.

The pressure on China will become immense and hyperinflation will occur where the money is going, China.

Not in the United States, but in China.

Once that happens, politically it is anyone’s guess as to what will happen next.

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

 

Notice the headline change on the "Euro has 'one in five chance' of collapse, warns CEBR" news story. The change was not made before I posted the story here.

Other news:

"NEW YORK (Reuters) - Moody's warned on Monday that it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law.

The plan agreed to by President Barack Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.

A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday."

 

Health-care law unconstitutional, judge says

Royal Bank of Canada loses triple-A rating

Moody's maintains negative outlook on U.K. banking

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Obamacare suffers legal setback...

..the "you must buy insurance" requirement found unConstitutional --

http://www.cnn.com/2010/POLITICS/12/13/health.care/index.html?hpt=T1&ire...

Somebody wake up the Supremes, they've got a biggie on the way...

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

Mish responds to John Williams

One thing is for certain-- at least one of them is wrong...

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...
bmc wrote:

Mish responds to John Williams

One thing is for certain-- at least one of them is wrong...

Not necessarily.  Depending on where you look one can argue we have both inflation and deflation right now.  We could also have one followed by the other.  There is also the problem of agreeing on definitions which are not as simple as you would think at first glance.  Either path is not going to be good. 

Travlin 

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

I read a few days ago in THE ECONOMIST that the average US ceo makes 500 times the average salary of his company employees.  This was up from 50 times about 30 years ago.  Does not anyone understand that this is theft?  Have all the ceo's, bankers and wall street executives graduated from the Ayn Rand school of business as in "greed is good"?  I repeat,  these obscene salaries are no less than theft.  If  these people were paid a fair and realistic wage, there would be more money available for higher employee wages,and more money for higher dividends for stock holders.  The public could also benefit from lower prices for the companies product or service.  I repeat once more: these obscene wages are no less than theft!

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...
speakcat wrote:

The public could also benefit from lower prices for the companies product or service.  I repeat once more: these obscene wages are no less than theft!

So the question is why aren't people doing the following, which is how this problem should be resolved:

  1. Don't buy the companies goods.
  2. Don't hold the companies stock.
  3. Don't work for the company.

There doesn't have to be any regulation or law, people just have to decide to either take a stand or quit bitching! Now granted it's a bit of a problem if the Fed can pump up the stock so that issue #2 above overcompensates for the others.  Cry

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

if i had a cat that shat skiddles i'd have plenty of candy.

while there are clearly more and more people waking up to the reality it hurts to read all their shallow solutions.

the problem with rhares solution above, which i agree with rhare and my above sentence is not directed at you at all. but the problem is that it means people will pickup and deploy personal responsibility and self determination.

both much more scary and unknown then accepting debt slavery, which is a known, safe, easy route where you don't have to risk success/failure.

it's truly the path of least resistence and therefore predictable.  can it be changed?  no i don't think so.  i think we need total collapse and a generation or two of superduper extreme pain to restore the values we had 200 years ago when this experiment was started.

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

speakcat

I agree that the obscene compensation packages taken by management in large corporations (especially financial ones) are simply stealing from us all. Where did a significant portion of the wealth lost by the majority of Americans who have entrusted their savings to the financial system go if not to these same people. They have bankrupted our country by their greed and deceit taking with them what little security many of us have worked lifetimes to accumulate.

How ridiculous it is that our national arguments revolve around the edges of what is really going on. Healthcare, unemployment, welfare and Medicare are blamed for our financial ills while all the while the thieves of Wall Street and the Banksters have been working in cahoots with our politicians and the Corporatocracy to strip us clean and deny most of us the American dream.

rhare makes a good point about putting space between ourselves and these entities, however I fear that stronger measures will be needed given the stranglehold they have on nearly every part of our lives

Keep telling it like it is

Jim

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...
jpitre wrote:

I agree that the obscene compensation packages taken by management in large corporations (especially financial ones) are simply stealing from us all. Where did a significant portion of the wealth lost by the majority of Americans who have entrusted their savings to the financial system go if not to these same people. They have bankrupted our country by their greed and deceit taking with them what little security many of us have worked lifetimes to accumulate.

Do not take this the wrong way.  I completely agree we have been robbed by many on Wall Street and those well connnected to the Fed and it's free supply of money.   However, the blame cannot be completely laid on them.  We all have (particularly in Western countries)  lived well beyond our means for years.  A huge chunk of the population have houses, cars, latest in electronic gadgets, healthcare, and food far beyond what we should probably have if you look at our productive output.  

jpitre wrote:

How ridiculous it is that our national arguments revolve around the edges of what is really going on. Healthcare, unemployment, welfare and Medicare are blamed for our financial ills while all the while the thieves of Wall Street and the Banksters have been working in cahoots with our politicians and the Corporatocracy to strip us clean and deny most of us the American dream.

They are not the edges. They are the majority of the rot.  The Wall Street bonuses are a boogie man.  For example, it's reported that the Wall Street bonuses are in the neighborhood of $25B.  Lets also look at top 500 companies CEO Compensation (top 25 average about 50M, next 75 average 25M, bottom 400 average under 10M, at 500th your looking at less than 1M), so lets call it about 7.1B (total).  So, lets be extremely liberal and say 100B for excutive compensation and bonuses at large US companies.   From the Crash Course you find that the NPV of Medicare, Medicaid, and SSN is somewhere in the range of 75T, so that means all the top executive compensation is somewhere around 1/10 of 1%.  If you even compare it to our deficit it's about 6%.  So if you completely confiscated all executive pay above 1M at the top 500 companies, you would only reduce the deficit by 6% - a drop in the bucket.

We can look at it another way, all those EVIL super rich people.  Take the Forbes 400.   Confiscate all their wealth (not earnings - total wealth) and you get about 1.5T, or enough to cover the deficit of the US for 1 year.  Then what?

It's important to realize that we are spending huge amounts of money and making promises that can never be met and the media and politicians are putting on a circus centered on the corporate boogie men so that you are distracted from looking at the real problem: Spending well beyond our means.  If you look at the 75T and then consider that the US net worth (all assets of US citizens) is somewhere around 60T.   If the NPV (what the goverment would need right now in assets earning interest) of those promises is greater than the total value of all assets in the country, exactly how will that ever be paid?

 

 

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...
jpitre wrote:

I agree that the obscene compensation packages taken by management in large corporations (especially financial ones) are simply stealing from us all. .

rhare makes a good point about putting space between ourselves and these entities, however I fear that stronger measures will be needed given the stranglehold they have on nearly every part of our lives

Workers of the World, Unite !  Yell

Arbirtrary salary controls sometimes sound like a good idea.  Until one realizes they'll be interfering with capitalism and market forces.  Government interference with and central planning of (including the fed's artificial interest rate control) our market are the agents of our current economic and debt crisis.   And, as artificial wage controls are one aspect of communism, I'd just prefer to stick with the principles of a free republic, if we can ever get that back.

If you really want less corporate power and advantage over the little guy, work for smaller government.  Because if there's one thing big corporations like, it's big government !

 

 

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

Speakcat,

Anytime our govt gets involved, they screw things up worse.  Had the banks and auto companies been allowed to go bankrupt, there would have been a lot of pressure on executive pay, but because the companies were kept viable with govt money, it's business as usual.

I did a mini study of the top 25 paid CEO's in 2005 and where they were in early 2010.  A full 40% so significantly underperformed the market, a trained monkey could have done a better job.

Having said that, the govt has no business getting involved in pay.

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Re: Daily Digest 12/13 - Charting US Fiscal Catastrophe, ...

For 12/14 news:

 

 

"Dec. 14 (Bloomberg) -- Spain sold 2.5 billion euros ($3.4 billion) of Treasury bills, below the maximum target for the auction, as contagion from Ireland’s bailout prompted a surge in the country’s borrowing costs.

The Treasury sold 1.99 billion euros of 12-month bills and 523 million euros of 18-month bills, the Bank of Spain in Madrid said today. The average yield on the 12-year bills was 3.449 percent, compared with 2.363 percent when similar-maturity securities were sold on Nov. 16, and the 18-month paper yielded 3.721 percent, up from 2.664 percent in November. The Treasury set a maximum target of 3 billion euros for the auction."

"OLYMPIA, Wash. (AP) — Washington Gov. Chris Gregoire is asking the Legislature to make changes to the state's health care and pension systems to help address costs as the state grapples with a projected $5 billion deficit for the next two-year budget.

Gregoire told reporters Monday she is proposing ending automatic yearly pay increases for some state pension plans, a move she says would save the state $368 million for the 2011-2013 budget and would cut the state's unfunded pension liability of $7 billion by nearly 60 percent."

"New York state’s deficit may be 22 percent wider than estimated by the Budget Division because tax revenue, including from Wall Street bonuses, may be less than expected.

The division has forecast a 13 percent increase in taxable cash bonus payments to $39.7 billion, according to Erik Kriss, a spokesman. By contrast, Options Group, an industry consultant, estimates the annual payments will drop from a year earlier. Capital gains revenue also may fall short of estimates. "

"Boston — Massachusetts taxpayers have delivered more revenue to the state Treasury nearly every month since October 2009, but the Patrick administration still faces a significant budget gap largely because of soaring costs in the state Medicaid program, which has attracted almost a quarter million new enrollees since June 2006 while playing a major role in helping Massachusetts achieve the lowest rate of uninsured individuals in the nation."

"The combined unfunded liability of the Virginia Retirement System and other state-supported pension plans amounts to $17.6 billion, a report by the legislature's watchdog agency concluded Monday.

That means that contributions by the state and local governments likely will have to increase in the next biennium, said Tracey Smith, an analyst with the Joint Legislative Audit and Review Commission."

"SEATTLE, Dec. 13, 2010 /PRNewswire/ -- Milliman, Inc., a premier global consulting and actuarial firm, today released the latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans. In November, these plans experienced asset decreases of $8 billion and liability increases of $14 billion, resulting in a $22 billion decrease in pension funded status for the month. November's decline in funded status follows two months of improvement and leaves the pension funding deficit at $335 billion."

 

  • Other news, headlines and opinion:

S&P Says Could Downgrade Belgium Within 6 Months

France's Sarkozy says time to consider SDR role

China to raise inflation target in dovish signal

Household debt nears 900 trillion won (Korea)

US Senate Advances $858 Billion Extension for Bush-Era Income Tax Cuts

Cash Crunch Means RBI Seen Buying 300 Billion Rupees of Debt: India Credit (India)

Yahoo preparing to lay off 600 to 700 workers

Flint moving ahead with police layoffs, after city breaks murder rate record

Moody's: November CMBS Delinquencies Up; Office Space Hurt

Minnesota faces 'unsustainable burden' for long-term care

Europe should rescue banks before states (George Soros.....Financial Times)

Trichet Calls for `Maximum' Flexibility of Region's Rescue Fund

State wants Illinoisans to pay web taxes

 

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