Daily Digest

Daily Digest 12/8 - Treasury Spike After Tax Deal, Unemployment Insurance Rate Rises, World Oil Supply Crisis

Wednesday, December 8, 2010, 12:00 PM
  • Tax Cuts Could Hurt Moody's U.S. Rating: Report
  • Treasury Yields Spike After Tax Deal
  • New York State Pension $71 Billion Underfunded, Empire Center Report Says
  • Social Security Fund Can Weather Tax Break
  • Florida's 2011-12 Budget Outlook Getting Gloomier
  • Unemployment Insurance Rate To Rise (Nevada)

  • Increases In Unemployment Insurance Rate Could Impact Small Businesses (Utah)

  • Nys Public Pension Costs Will Double In 5 Years: Report
  • Top Pension Schemes Facing Funding Shortfall 'Soars By 50 Per Cent' (UK)
  • City Oks $67 Million Budget, Ends Trash Pickup At 450 Properties (Poughkeepsie)
  • Fight Brews Over Houston Budget, Furloughs
  • Greenlight’s Einhorn Says Global Sovereign Debt Crisis Looms

  • Higher Gas Prices Mean Cuts For Some Shoppers
  • World Faces Oil Supply Crisis - Iran Opec Chief
  • Governor To Call Emergency Session (Washington)
  • ECB Said to Be Buying Irish, Portuguese, Greek Government Securities Today


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Economy

Tax Cuts Could Hurt Moody's U.S. Rating: Report

U.S. sovereign debt ratings from Moody's Investor Service could be hurt by extended tax cuts in the long term, Reuters reported Tuesday. Moody's lead analyst for U.S. sovereign debt, Steven Hess, told Reuters he is not concerned by an extension of the Bush tax cuts on the U.S.'s AAA rating over the next 18 months to two years, but he is worried about what happens after two years when the extensions are set to expire again. "We have long term concerns about the (U.S. credit) outlook and they are not yet being addressed. We're waiting to see if they're going to be addressed in the next couple of years," Hess told Reuters in an interview.

Treasury Yields Spike After Tax Deal

The deal translates into a short-term boom for yields, but the measure could cost the government between $700 billion and $800 billion, which will add to an already sharp run-up in government debt.


New York State Pension $71 Billion Underfunded, Empire Center Report Says


New York state’s $132.8 billion pension plan is underfunded by $71 billion and annual taxpayer payments to keep it sound may more than double to almost $4 billion during the next five years, a report says.

Social Security Fund Can Weather Tax Break


A plan that is projected to take $120 billion out of the Social Security trust fund would seemingly be one to draw the ire of deficit hawks.... Social Security trustees had projected a deficit for 2011 even before the proposal to cut the payroll tax, though they had anticipated a surplus between 2012 and 2014.

Florida's 2011-12 Budget Outlook Getting Gloomier


A legislative economist told the Senate Budget Committee on Tuesday that she expects a predicted $2.5 billion budget gap to widen because the state's economic recovery has been slower than forecast....Baker's bad news includes up to $400 million more in state Medicaid expenses and $150 million less in school property tax collections due to a 1.2 percent drop in real estate values than previously predicted for 2011-12. The state now also expects to collect $30 million less from utility gross receipt taxes earmarked for education construction and maintenance projects. Gasoline and other transportation taxes also are expected to drop, which would cut funding for road building and maintenance.


Unemployment Insurance Rate To Rise (Nevada)


Nevada businesses will pay $136 million more in taxes in 2011 to try to put some cash back into the state's Unemployment Insurance Trust Fund.
That fund, which started this recession with a balance of more than $700 million, was depleted in October 2009 by benefit payments to record numbers of out-of-work Nevadans. Since then, Employment Security Division Administrator Cindy Jones said the state has had to borrow $579 million to cover checks for more than 100,000 on unemployment each week.
Through the end of September this year, she said, the state collected $570 million from employers but paid out $1.8 billion.

Increases In Unemployment Insurance Rate Could Impact Small Businesses (Utah)


This month, the Utah Department of Workforce Services posted a letter on its website, explaining to employers that the contribution rate for Unemployment Insurance would increase for 2011. DWS attributed the need for the hikes to "the higher benefit costs associated with the economic downturn" resulting in "a significant decline in the Utah Unemployment Trust Fund balance over the past two years."....As an example, he mentioned that new employer rates for his industry jumped from 1.3 percent in 2010 to 3.3 percent for 2011 — a full 250 percent increase."To put that in perspective, if a business did $2 million in taxable wages in a year, the adverse impact will be $40,000 annually," Call said. "In a 'tight margin' economy, that kind of impact could be devastating."


Nys Public Pension Costs Will Double In 5 Years: Report


Taxpayer contributions to the New York State and Local Retirement Systems could double over the next five years, adding nearly $4 billion to annual taxpayer costs, according to the report by the nonpartisan think tank.
Taxpayer contributions to the New York State Teachers' Retirement System, which totaled $900 million this year, could reach $4.5 billion by 2016, the report said.
"The run-up in pension costs threatens to divert scarce resources from essential public services during a time of extreme fiscal and economic stress for every level of government," the report said.

Top Pension Schemes Facing Funding Shortfall 'Soars By 50 Per Cent' (UK)

But despite the recent stability, the group said the funding shortfall faced by the 200 largest schemes had still soared by 50 per cent during the past four years, rising from an average of £55 billion during 2006 to one of £87 billion this year.
Sarah Abraham, consultant and actuary at Aon Hewitt, said: 'In the aftermath of the financial crisis, pension deficits crept up to record highs. In mid-June 2010, the deficit reached its highest level of £112 billion.

City Oks $67 Million Budget, Ends Trash Pickup At 450 Properties (Poughkeepsie) 


Some residents and property owners have spoken against the plan, claiming that cutting the service would be unfair. Opponents also say landlords at the affected properties will raise tenant rents if property owners are forced to hire private trash haulers.
Council Chairman Lee Klein, R-4th Ward, said the difficult economy has forced many cities to make difficult fiscal choices.
"These are tough times," Klein said. "The choices are tough."


Fight Brews Over Houston Budget, Furloughs 


Some estimates predict Houston will face a nearly $120 million budget shortfall as early as next summer, in part because of a drop in property-tax revenues, a loss of revenue from the now-defunct red-light cameras and growing pension costs.
"We've been focusing on finding the efficiencies," Mayor Annise Parker said. "Now we're down to what we can do to plug the hole."
Fear of mandatory furloughs and layoffs has led to lower morale, according to city employees.
"You've got people that are living paycheck to paycheck," said a City of Houston employee, who asked not to be identified. "There's going to be a lot of people out there struggling."


Greenlight’s Einhorn Says Global Sovereign Debt Crisis Looms


David Einhorn, president of hedge- fund operator Greenlight Capital Inc., said the global economy will face a sovereign debt crisis after governments around the world increased spending to deal with the fallout from the financial crisis. 
“We managed to transfer a lot of the problems from the private sector to the public sector,” Einhorn said in an interview with the Charlie Rose television show. “It’s created a very, very large budget deficit. And it’s created a monetary policy that’s extremely easy. It is eventually going to come to a tough spot.” 


Higher Gas Prices Mean Cuts For Some Shoppers


The national average for a gallon of regular hit $2.95 on Monday. That's the highest December price in three years. 
Analysts say the national average could hit $3.00 or more by the end of the year if oil prices don't go down.
One shopper we spoke to said she's going to have to cut back somewhere.
"It's gonna take a little bit from that, you know, just having to manage the fuel to get around," Bernadette Kelly said. "You've got gifts and groceries and other bills that have to be paid along with paying for gas." 


World Faces Oil Supply Crisis - Iran Opec Chief


"In recent years some of non-OPEC countries have continuously oversupplied the market, but this will not be possible in the coming years because of a drop in production," Khatibi said.
Characteristically bullish on the oil price, Khatibi said higher prices were needed to enable producer countries to invest.


Governor To Call Emergency Session (Washington)


Governor Christine Gregoire says she will call state lawmakers into an emergency session later this month to deal with a billion-dollar hole in the state budget....Washington State is facing an estimated $1.1 billion deficit in its current budget and $5.7 billion in the 2011-13 biennium.


ECB Said to Be Buying Irish, Portuguese, Greek Government Securities Today


The European Central Bank bought Irish and Portuguese government bonds today, according to at least two people with knowledge of the transactions. 
Central banks were also buying Greek debt, said one of the people, who asked not to be identified because the deals are confidential. A spokesman for the ECB in Frankfurt declined to comment.

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12 Comments

saxplayer00o1's picture
saxplayer00o1
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Posts: 4148
Re: Daily Digest 12/8 - Treasury Spike After Tax Deal, ...

""For now, market attention is still on Europe and for the coming 6-12 months, it will not shift to the United States," Li said, when asked about U.S. President Barack Obama's plan to extend tax cuts for all Americans.

"But we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe. In one or two years, when the European debt situation stabilises, attention of financial markets will definitely shift to the United States. At that time, U.S. Treasury bonds and the dollar will experience considerable declines." "

"The U.S. Treasury set a record for borrowing in a calendar year after selling $32 billion of three- year securities to push its total note and bond sales to $2.116 trillion amid all-time high demand for the debt.

Bond dealers and investors have bid $6.33 trillion at the auctions this year, or a record $2.99 for every dollar of debt sold. Treasuries tumbled today, pushing the 10-year note yield up the most since September 2008, after President Barack Obama agreed to extend tax cuts for two years and the three-year note sale drew the lowest demand since February."

"The compromise will add $148 billion to the shortfall, pushing it to $1.34 trillion for fiscal 2011, Credit Suisse strategists Scott Sherman, Ira Jersey and Jay Feldman, all based in New York, wrote in a report to clients today. The forecast is near the $1.42 trillion and $1.29 trillion deficits in the 2009 and 2010 fiscal years."

"States are reporting billions in midyear budget shortfalls, and the crunch is likely to continue for at least several more years, a new report says.

Fifteen states are facing combined budget gaps midway through their 2011 fiscal year totaling $26.7 billion, according to a National Conference of State Legislatures report to be released Wednesday. The other 35 states say they are on target with their budgets. At this time last year, 36 states reported a combined $28.2 billion shortfall.

State government spending has begun to rise after falling sharply during the recession, in part because tax revenues are slowly on the mend as the economy recovers. Even so, revenues remain far below pre-recession levels, and many states face pressure to cut programs and raise taxes to cover yawning gaps in their budgets."

"U.S. states are preparing for more budget cuts next year as tax revenue isn’t likely to rebound enough to replace almost $38 billion in aid that will be gone as federal economic stimulus ends, according to a report.

At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said today. Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor. That aid will be gone, the group said.

“Although a recovering national economy is helping to stabilize state revenues in fiscal year 2011, serious budget challenges await state lawmakers in the new year,” the group said today in the report. “This largely stems from fewer federal stimulus funds available for next year’s budgets.” "

"WASHINGTON (AP) — When Democrats passed President Barack Obama's health care overhaul, they used Medicare cuts to pay much of the cost of providing insurance to millions of uninsured.

Now, lawmakers scrambling to stave off a scheduled 25 percent cut in doctors' Medicare pay on Jan. 1 plan to reverse the flow. They're tapping financing for the health care overhaul to keep Medicare from breaking down.

The $19 billion will help pay doctors at current rates for another year. It will come mostly from tightening the rules on tax credits in the health care law that make premiums more affordable, according to an agreement reached Tuesday by Senate leaders of both parties.

It might seem like the proverbial robbing Peter to pay Paul, with a game of budget tag thrown in."

......................6A) Cuts In Doctor Fees For Medicare Patients Delayed

"NEW YORK (Reuters) - The average American has saved less than 7 percent of his desired retirement nest egg and will likely have to keep working in retirement to supplement his income.

Middle-class Americans think they need $300,000 to fund their retirement, but on average have only saved $20,000, according to a survey released on Wednesday by Wells Fargo & Co."

 

  • Other news, headlines and opinion:

 

US Tax-Break Said to Cost $100 Billion a Year, NY Post Says

Euro Area in 'Final Countdown' to Debt Restructuring, M&G Says

Texas Borrows to Pay Unemployment Benefits as Spread Narrows: Muni Credit

Bankruptcy still an option, new Jefferson County commissioners say

Deficit could reach $11 billion - English (New Zealand)

Banks in Europe Fail Market Tests for Stress With No Authority

Moody's Downgrades Nearly $16.5B More Of RMBS

Chowchilla teeters on edge of financial abyss

Long Beach to have a $1.2B pension hole by 2041

Plunging Home Prices Fuel Property Tax Appeals Swamping U.S. Cities, Towns

Robo-Signing Scandal Dampens Housing Recovery Hopes

Consumers Don't Expect Housing Recovery Until 2013, Experts Agree

America Laughs As Jon Stewart Explains How Ben Bernanke Is Robbing It Blind (Video posted at zerohedge)

2010: Our Listeners Questions Answered, Part II (McAlvany audio...Skip ahead to just past the 24 1/2 minute mark and listen to the part about if a weak dollar helps exports)

 Video Reveals Gimmicks Used by CalPERS to Hide Its Decline in Assets (Gwilym McGrew / BigGovernment.com....link was posted at Pension Tsunami)

Bank of America Deal in Muni Case May Be `Tip of the Iceberg'

 Calpers Aristocracy (Video posted at CNBC...a must watch)

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
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Re: Daily Digest 12/8 - Treasury Spike After Tax Deal, ...

"NEW YORK (MarketWatch) — Treasury prices fell on Wednesday, pushing yields on 10-year notes to the highest level since June, ahead of the government’s auctions of the benchmark securities as investors signal worry that the U.S. is not dealing with its budget deficit."

 

"NEW YORK, Dec 8 (Reuters) - U.S. Treasury prices plunged on Wednesday for a second straight day, pushing benchmark yields to a six-month high, after a deal to extend tax cuts fueled fears of inflation and a swelling budget deficit.

The intense sell-off raised worries over demand at a $21 billion sale of 10-year notes later this session and a $13 billion reopening of a 30-year bond issue on Thursday.

"This tax agreement is a disaster for the the U.S. fiscal situation," said Howard Simons, strategist at Bianco Research in Chicago."

 

iShares Barclays 20+ Year Treas Bond (TLT)....(currently down 1.71%...notice the 5 day chart)

 

 

Montana Native's picture
Montana Native
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Re: Daily Digest 12/8 - Treasury Spike After Tax Deal, ...

Thanks for the hard work Sax......youve outdone yourself today.

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idoctor
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Re: Daily Digest 12/8 - Treasury Spike After Tax Deal, ...

 
 
 
Poet's picture
Poet
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Banks Trying To Foreclose on Paid-For Homes


AP IMPACT: Caught by mistake in foreclosure web

These homeowners paid their mortgages - or loan modifications - on time. Some even paid off their loans. Worse, those on the receiving end of a bad foreclosure claim tell similar stories of getting bounced from one bank official to the next with no resolution while the foreclosure process continues apace.
http://www.boston.com/business/articles/2010/12/08/ap_impact_caught_by_m...

There should be a new law. If you're a bank and you try to foreclose on a paid-up house or an already paid-for house, you pay up the entire remaining balance (or $100,000 fine to the homeowner, whichever is higher) in addition to all legal fees.

Poet

freeeeeman's picture
freeeeeman
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Re: Banks Trying To Foreclose on Paid-For Homes

ugh.... any time someone busts out with "lowering taxes are always better" and "no one knows how to spend your money better than you", i have to say i don't trust their judgement too well. there's obviously a sweet spot where some govt spending/investment on the community is a good thing. personally, i'm glad to be taxed in exchange for all the roads, fire departments, police, etc...

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Damnthematrix
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rhare's picture
rhare
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Re: Banks Trying To Foreclose on Paid-For Homes
freeeeeman wrote:

i'm glad to be taxed in exchange for all the roads, fire departments, police, etc...

Why?  Do you not trust in yourself to handle and choose which of these items are important to you?  It they are important why not pay a private company to supply those services to you? 

While I'm certainly not opposed to communities organizing and choosing to allocate those items to public projects, I believe we have gone way way way too far the other direction for centralized control.  Certainly all of those items should be the purview of a local (city,town) government.  However, many of them are mandated and financed via funds at the state or federal level.  That means decisions that may not fit or be appropriate for a community are being made by non-community members.

 

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bandvbandv
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Re: Daily Digest 12/8 - Treasury Spike After Tax Deal, ...

ron paul and peter schiff interview

http://vinceseconomicblog.wordpress.com/2010/12/09/ron-paul-peter-schiff...

 

 

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phecksel
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Re: Banks Trying To Foreclose on Paid-For Homes

Freeeeman,

We had a medical emergency at our residence.  Volunteer (paid per call) fire department responded with a fire truck, rescue squad, two police cars.  While I appreciate the attention, that was a bit overkill.

Main street was recently re-paved, all two lanes wide for .7 mile, at a cost of something like 4 million dollars!

I drove through another community yesterday that was blowing leaves off the grass, into the street and then using a street sweeper to pick them up.  I counted 7 people, three city trucks, and multiple push blowers.

These are not effective or productive uses of taxpayer money.

freeeeeman's picture
freeeeeman
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Re: Banks Trying To Foreclose on Paid-For Homes
rhare wrote:

Why?  Do you not trust in yourself to handle and choose which of these items are important to you?  It they are important why not pay a private company to supply those services to you?

phecksel wrote:

Freeeeman,

We had a medical emergency at our residence.  Volunteer (paid per call) fire department responded with a fire truck, rescue squad, two police cars.  While I appreciate the attention, that was a bit overkill.

Main street was recently re-paved, all two lanes wide for .7 mile, at a cost of something like 4 million dollars!

I drove through another community yesterday that was blowing leaves off the grass, into the street and then using a street sweeper to pick them up.  I counted 7 people, three city trucks, and multiple push blowers.

These are not effective or productive uses of taxpayer money.

thank for all the thoughtful answers. i love this site!

i won't deny that phecksel examples seem like inefficiencies and that we've gone too far w/ the size of the fed govt. however, i've worked in and been around enough large companies to know they have TONS of inefficiency too. the problem is the size of the project, human limitations and politics involved, not necessarily whether or not it's public/private.

public entities have their issues, that's for sure. private companies, however, have the goal of making profit first and everything else is secondary. so if a company can make a street for 1/2 the price, but it only lasts 20 years instead of 40, they'll do it if it's profitable. the free market doesn't really have time to respond. btw, how expensive is it for a private company to pave .7 miles? i have no idea, but it can't be cheap. especially after we need to pay them enough to make a profit and advertise, etc.

and as for the street sweeper example... if you already have a street sweeper cleaning the streets (odds are they do), i'd say that's really efficient. why pick up the leaves when something that is already there can do it?

private volunteer operations (if not for profit) do seem like a great choice b/c their goal is only to make enough money to stay afloat but then provide the service the way they think it should be. hospitals around here (san diego) used to be non-profit in the 70s and things were definitely cheaper/better then. i'm a big believer in those.

so for items like my TV, laptop, couch, piano... i know how to spend my $ better. i agree. but i'd rather have a govt entity that is (sort of) accountable to us maintaining roads, fire department, libraries, etc. the line "you know how to spend your money better" seems to be a republican talking point for cutting out govt spending in places i don't think we should cut (welfare, food stamps, etc).

 

rhare's picture
rhare
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Posts: 1325
Re: Banks Trying To Foreclose on Paid-For Homes
freeeeeman wrote:

private companies, however, have the goal of making profit first and everything else is secondary.

You missed a most critical point here, private companies in order to stay profitable must keep getting business.  In order to do that they have to sell a quality product and at a price that keeps them getting business.  Competition results in cheaper and often better products.  Want a good current example:  Compare elective medicine (cosmetic, lasic, etc) to the heavily mandated/regulated primary healthcare.  Or compare the service you get with say FedEx versus the post office.  One has to fight to get and keep your business while the other is handed a monopoly.  John Stossel has some great videos on this.

freeeeeman wrote:

btw, how expensive is it for a private company to pave .7 miles? i have no idea, but it can't be cheap. especially after we need to pay them enough to make a profit and advertise, etc.

We had an interesting case study here in NM where a major highway was farmed out to a private company for widening versus the traditional government run method of doing things, it resulted in the project being completed in 3 years versus 27 (yes - 9 times faster) and for 89 million (28%) less.

freeeeeman wrote:

private volunteer operations (if not for profit) do seem like a great choice b/c their goal is only to make enough money to stay afloat but then provide the service the way they think it should be. hospitals around here (san diego) used to be non-profit in the 70s and things were definitely cheaper/better then. i'm a big believer in those.

Healthcare everywhere was cheaper/better then.  It's not just because they were non-profit, it's because government involvement in healthcare has dramatically grown since then.  Your example here is exactly why you want government out of as many aspects of our lives as possible.

freeeeeman wrote:

in places i don't think we should cut (welfare, food stamps, etc).

Hmm, I would actually say government should not be providing any of those things . Wink

 

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