Daily Digest

Daily Digest 9/15 - Poverty In The Recession, Aging Population Increases Health Spending, More Pension Reforms For NJ

Wednesday, September 15, 2010, 9:49 AM
  • Life on the Economic Edge
  • Poverty in the Recession
  • Aging Population, Spending On Health Costs Boost Debt
  • Jewelry Companies Mull Listing On Soaring Gold Demand
  • Bernanke 2011 Outlook May Swing Fed Decision on Bond Purchases
  • Town Water Woes Coming To Boiling Point
  • Miami Prepares For Public Hearing On Budget
  • New Jersey Governor Proposes More Pension Reforms
  • Pension Fund Woes Detailed In Milliman Study
  • IMF Chief Calls For Centralised Fiscal Control Of Euro Zone

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Life on the Economic Edge

The poverty rate is expected to have been 15 percent in 2009, up from 13.2 percent—the largest one-year increase since the government began keeping records. While things are improving for the wealthiest Americans, here’s a look at those who are still reeling from the financial blows they’ve been dealt.

Poverty in the Recession

Sometime this week, the Census Bureau will release figures on poverty in the United States in 2009. The Associated Press asked some demographers to sketch out the probable results — and they are grim.

The demographers estimate the poverty rate will increase year-on-year from 13.2 percent to about 15 percent. That means one in seven Americans, some 45 million people, lived in poverty last year, the “highest single-year increase since the government began calculating poverty figures in 1959.

Aging Population, Spending On Health Costs Boost Debt

But the Census Bureau said the programs benefiting the most households were Social Security and Medicare, the retirement and health programs for the elderly.

Those programs, along with Medicaid, have grown in 40 years from 19 percent of the budget to 39 percent in 2009, more than doubling their share. Costs are going to keep increasing as more baby boomers retire and health care costs continue to increase.

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Jewelry Companies Mull Listing On Soaring Gold Demand (India)

Singed by falling property prices in the last 18 months, consumers have been using gold as a hedge. Industry body World Gold Council (WGC) said local demand for jewellery, bars and coins in the first half of 2010 grew by 94% from a year ago to 365 tonnes even though the average price increased by 22% year-on-year to `17,592.65 per 10 gm. India is the world’s largest consumer and importer of gold, having imported 538 tonnes in 2009.

Bernanke 2011 Outlook May Swing Fed Decision on Bond Purchases

Federal Reserve Chairman Ben S. Bernanke’s growth forecast for 2011 may carry more influence than usual as Fed officials debate whether to resume large-scale purchases of Treasury notes to boost the economy.

Town Water Woes Coming To Boiling Point

Their local water company, Assabet, has been drowning in debt for years and plans to file for bankruptcy on Sept 28. Its state of the art treatment plant will close its doors for good.

"Once the filing is done, it's up to the federal bankruptcy judge, and he could conceivably within his rights on Sept. 29 say, 'Yes. It's time to liquidate the assets,'" said Jamie Monat of the Harvard Acres Water Board Committee. The company may shut off the water supply months before homeowners find the cash to sink a well.

Miami Prepares For Public Hearing On Budget

Under the specter of a federal investigation and declaring a fiscal emergency, this marks the bleakest year on record for the City of Miami.

Hours before the meeting, commissioners met to try and fill holes in the $105 million deficit by increasing fines and fees. The mayor said these are fees that the common taxpayer will not feel, though some commissioners beg to differ. "We have come up with fees that will not impact the residents directly," said Mayor Tomas Regalado.

New Jersey Governor Proposes More Pension Reforms

The state skipped a $3 billion payment this year. Christie said pension system debt will continue to grow without reforms, even if the state makes its full contribution.

Pension Fund Woes Detailed In Milliman Study

Last month, the 100 largest defined-benefit pension plans in the U.S. lost $17 billion in assets and saw liability increases of $91 billion, resulting in a $108 billion decline in pension funded status.

According to a Milliman Inc. study, that decline brought the funded ratio down to 70.1 percent, which is the lowest in the 10 years that the Seattle actuarial firm has been doing the study. Milliman officials blame interest rates.

IMF Chief Calls For Centralised Fiscal Control Of Euro Zone

THE HEAD of the International Monetary Fund (IMF), Dominique Strauss-Kahn, has called for the creation of a fiscal federation in the euro zone which would have much greater control over tax and spending issues in member states.

Speaking at a conference in Brussels, Mr Strauss-Kahn, a leading figure in France’s opposition Socialist Party, said “a more integrated and centralised fiscal framework could deliver higher and more stable growth for Europe” . He warned that without “fiscal federalism”, Europe’s single currency may not survive.

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."


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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

"U.S. state pensions such as Illinois, Kansas and New Jersey are in a “death spiral,” with assets at many insufficient to cover benefits, payouts consuming a growing portion of resources and costs rising twice as fast as investment gains.

Less than half the 50 state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled for the Bloomberg Cities and Debt Briefing in New York today. Two years earlier, only 19 missed the mark. Illinois covered just 50.6 percent of benefits last year, the lowest so-called funded ratio, which actuaries say shouldn’t be less than 80 percent.

Benefits paid by funds in at least 14 states equaled more than 10 percent of assets in the fiscal year, the figures show. In 2007, none exceeded the threshold. The growing burden prompted Colorado, Minnesota, Michigan and other states to trim benefits for millions of teachers and government workers. It also forced fund managers to keep money in short-term low-return investments to pay benefits, reducing chances pensions can earn their way back to financial health.

“Once you get into that dynamic, you’re in a death spiral,” said Michael Aronstein, who manages the $295 million Marketfield Fund of stocks as chief investment strategist at Oscar Gruss & Son, a New York brokerage. “There’s no financial or return solution.” "

"Ding Yifan, a policy guru at the Development Research Centre, said China could respond by selling holdings of US debt, estimated at over $1.5 trillion (£963bn). This would trigger a rise in US interest rates. His comments at a forum in Beijing follow a string of remarks by Chinese officials questioning US credit-worthiness and the reliability of the dollar."

"U.S. lawmakers will grapple today with how to end the bailout of Fannie Mae and Freddie Mac after two years and almost $150 billion, and who pays the bill for bad loans made during the housing boom.

Regulators who seized control of the two mortgage lenders in 2008 are under pressure to stem losses for taxpayers and recoup money from banks that sold faulty loans to Fannie Mae and Freddie Mac -- all without hindering the housing market’s recovery. "

"The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

Shadow inventory -- the supply of homes in default or foreclosure that may be offered for sale -- is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

“Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

Rising supply threatens to undermine government efforts to boost the housing market as homebuyers wait for better deals. Further price declines are necessary for a sustainable rebound as a stimulus-driven recovery falters, said Joshua Shapiro, chief U.S. economist of Maria Fiorini Ramirez Inc., a New York economic forecasting firm."

"Shoppers are set to suffer from rising clothing costs next year, Next warned on Wednesday, as it pointed to increased pricing pressure from a combination of manufacturing constraints overseas, wage inflation and higher fabric costs.

The retailer, which reported a jump in interim pre-tax profit thanks to margin improvements, predicted that price rises would come in for spring/summer collections that start to hit the stores in early 2011."

"Mr Wolfson said the “biggest single factor” in higher clothing prices would be the rise in commodity prices, particularly cotton, although prices were also being bloated by wage inflation in overseas manufacturing and a tightening of capacity in clothing factories, after operators in southern China closed down in early 2009 due to the credit crisis.

Next’s warning comes just two days after Associated British Foods predicted that margins at its Primark clothing chain would come under pressure next year due to the effects of VAT increases as well as higher prices for both transport and cotton."

"Greenspan advocated that U.S. officials drop their bias for stimulus and move toward the stance seen in recent months in Europe, where governments have focused on cutting spending in a bid to put their finances on a more sustainable footing. He said delaying so-called fiscal consolidation for two years to allow the economy to recover, and the deficit to deepen, risks a debilitating shift in psychology.

He said this happened in 1979, when Treasury rates spiked as inflation fears took off. and he warned that policymakers must take steps now to prevent a recurrence.

"I don't think we have time to wait," Greenspan said. "Our choice is not between good and bad, it's between terrible and worse.""


  • Other news and headlines:

Yen Retreats on Intervention

Bankrupt, USA: Why our cities aren't too big to fail (CNN Money)

SC radioactive waste program runs $1.5B over plan

A look at state pension changes

New York's $133 Million in School Bonds May Face Rising Yields

Student loan debt expected to pass $15 billion this month (Canada)

Looming Debt Burden Getting Repaid, Kicked Down the Road -Moody's and Soaring High-Yield Bond Issuance Pushes Debt Wall Past 2012, Moody's Says

Rate rises expected across Asia

Nortel pensioners face hefty cuts to benefits package (Canada)

Jobless are straining Social Security's disability benefits program

Illinois' Billions in Unpaid Bills: Deciding Who Gets Paid When

US debt surges, leaving nation with difficult choices ahead

Bank of America warns of new fees after financial reforms

CalPERS must release documents detailing $100 million investment loss

Gold Hits New High; "Greed and Stupidity" of Politicians Will Keep It Going

West Covina mulls fee for residents who make medical emergency calls

SD city seeks more cuts in police, fire service (San Diego)

Broward schools in class-size quandary (Florida)

Portugal Courting Greece's Fate, Must Do More, CDU Lawmaker Meister Says

Home loan demand drops as refinancing loses luster

Special Report: Blue-collar, unemployed and seeing red

Mexico finds itself with little to celebrate

New plan gives government first dibs on foreclosures

Freddie Foresees Price Declines

FEATURE-Gold fever strikes mom and pop prospectors in US West

Retirement on Hold: American Workers $6 Trillion Short (CNBC)

crash_watcher's picture
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Modern Day Gold Rush (video segment)


From last night's ABC’s nightline, who have discovered that gold is up $1000 in the last 10 years, firing, as they say, “the fevered dreams of investors all over the world.”  Could this be the end of paper currency or is this a gold bubble??

Couldn’t they get someone better than Ferris Bueller’s Economics teacher to advocate their “gold is in a bubble” party line?

The segment is pretty humorous, although, when news of gold hits main stream media, it does make me nervous that we are at or near an intermediate spike.  

r's picture
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For some New Yorkers gold still glitters

Quoted from http://www.npr.org/templates/story/story.php?storyId=129861260 :

"From member station WNYC, Lisa Chow looks for people buying and selling gold the old fashioned way.

LISA CHOW: With gold prices hitting record levels, I wondered who are these small investors dedicated enough to put down $1,200 for a tiny ounce of gold?

Mr. ADAM GOLD (Gold Investor): First name is Adam, last name is Gold. I kid you not.

CHOW: I find Adam Gold in a downtown bar at a gathering of Ron Paul admirers, which isn't too surprising considering that the Texas congressman is a big fan of gold. He calls it sound money.

Mr. GOLD: I expect gold to double. At least to double.

CHOW: And how does Gold invest?

Mr. GOLD: I have a broker who does it.

CHOW: Does that mean you have the actual gold?

Mr. GOLD: They hold it for me.

CHOW: And where are they holding it?

Mr. GOLD: They hold it in vaults.

CHOW: Have you ever checked out the vaults to make sure they're holding it?

Mr. GOLD: Nope. I'm not yet to the point, although I may well get there, where I actually physically hold the gold in a safe in my apartment.

CHOW: Cris Rodriguez has gotten to that point.

Mr. CRIS RODRIGUEZ (Gold Investor): I'd rather start off as a base owning the physical gold. I do think there is going to be a collapse.

CHOW: A collapse in the U.S. dollar, and gold is his protection.

Mr. RODRIGUEZ: Look at the Federal Reserve chart of the expansion of money, I mean, it looks like you're standing in front of Mount Everest.

CHOW: The fear is, is that as the Federal Reserve increases the money supply, the value of the dollar shrinks and rampant inflation will follow.

Ken Rogoff is an economics professor at Harvard and a former chief economist at the International Monetary Fund.

Professor KEN ROGOFF (Economics, Harvard University): With the recession, with concerns about the sustainability of U.S. fiscal policy, it's very understandable that a lot of the really big players, the really rich players are looking to gold for diversification."

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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

This is a profoundly disturbing article:



Instead, the people said, Warren may be named a counselor to Treasury Secretary Timothy F. Geithner, who under the Dodd- Frank financial regulatory law is responsible for setting up the bureau before it becomes an independent agency housed at the Federal Reserve. While Warren’s job would be to help establish the bureau, she would be under Geithner, the people said.


Some banking industry representatives have said that Warren’s consumer advocacy might impair her ability to lead the new agency. Having her work at Treasury could alleviate concerns by the financial industry about how she might use the bureau’s wide authority.

“This could be a wise move,” said Wayne Abernathy, an executive vice president at the American Bankers Association who handles regulatory affairs. The agency “would start off with accountability and oversight.”

Working under Geithner?  She should be replacing him.  And, Mr. Abernathy, et.al. should be running for shelter.  This looks more and more like the same ol', same ol'.  I hope Warren chooses wisely.


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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...


I share your concern that the news stories regarding gold could be indicative of it going mainstream and, therefore, a warning sign that perhaps things are running out of steam -- if I interpreted you correctly.

However, in this case I don’t see the media attention as a sincere response to the price of gold or the attention it’s receiving in the counter-stream investing/financial world. Instead I see these reports as hit pieces designed by the status quo to attempt to put a lid on a gold bull run that probably has considerably more to go.

So in this sense the spike in stories could be attributable to the fact that gold is poised to explode and further threaten the veil of legitimacy still dangling in front of mainstream everything -- media, economics, etc. -- and not a sign that a good thing has gotten too good.

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Lawsuit: Gas drilling fluid ruined Pa. water wells

Lawsuit: Gas drilling fluid ruined Pa. water wells

"Thirteen families in the heart of the gas-rich Marcellus Shale of northeastern Pennsylvania say their water wells have been contaminated by hazardous fluids blasted deep underground by fracking, a process used to free the gas."


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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

The trouble with many of the "indicators" we report is that some are pretty current and others are severely lagging. Home sales are generally the former and home prices the latter.

That's why, given the combination of the expiration of the home buyer tax credit and the increasing number of loans moving to final foreclosure, we knew that home prices overall would take a hit, but it would take a while.

Well we're here.

Two new reports out today prove the consequences of oversupply of organic inventory (12.5 months on existing homes in July according to the National Association of Realtors) and the shadow inventory of foreclosed properties (estimates vary widely and wildly). CoreLogic's Home Price Index shows home prices "flat" in July as transaction volume continues to decline. "This was the first time in five months that no year-over-year gains were reported," according to the release. In June, prices were up 2.4 percent year over year. In addition, "36 states experienced price declines in July, twice the number in May and the highest number since last November when prices nationally were still declining."

And there's the rub.

Prices have been recovering since last Fall, largely thanks to the artificial stimulus of the $8000/$6500 home buyer tax credit. But prices were also benefiting from a slight bump in confidence in the housing market, fed by an apparent drop in the foreclosure numbers. In reality, the foreclosure numbers were dropping only because banks and states were delaying the process, as they tried to cram as many borrowers as possible into what we now know is a largely unsuccessful government-backed mortgage modification program.

Now home buyer confidence is back in the dumps, which is clear from another report out today showing that for the 3rd straight month the percentage of home sellers on the market who have slashed their asking prices at least once has gone up. Twenty-six percent of sellers on the market in August, according to Trulia.com, had lowered their expectations, and hence their prices. Sellers on the market today have cut $29 billion off their collective home equity.

We spoke to two sellers in Northern Virginia, Stephanie and Gabriel Mikulasek, who have dropped their asking price by $21,000. "We thought it was the value of the house that we could probably get, if the market would pick up a little bit, and people were a little positive," Gabriel told us. "What we found out is that the market is pretty slow; people are very hesitant to make bids, so we decided to make it a little more attractive and lessen it, and see how it goes."

They say today's buyers are only looking for great deals, so if you price the home at its actual value, nobody's interested. You have to go below.

Some of you responding on the blog yesterday said that your markets are just fine, even seeing competition in offers again; I'm sure this is true in many local areas. The trouble is that those areas are in the vast minority. Unless we see a marked, widespread increase in home sales over the next several months, prices will go from flat to down once again.

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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

And now for more happy news on the recovery:



By Albert Edwards

The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.


I love the delusion of the markets at this point in the cycle. It bemuses me why investors cannot see what is clear as the rather large nose on my face. Last Friday saw the equity market rally as August's 67k rise in private payrolls and an upwardly revised July rise of 107kbeat expectations. But did I miss something? When did we switch from looking at headline payrolls to private jobs? Does the fact that government is shedding jobs not matter? Admittedly temporary census workers do mess up the data, but hey, why not look at nonfarm payroll data ex census? Why not indeed? Because the last 4 months run of data looks notably weaker on payrolls ex census basis than looking only at the private payroll data (ie Aug 60k vs 67k, July 89k vs 107k, June 50k vs 61k and May 21k vs 51k). But these data, on either definition, look dreadful compared to the 265k rise in April and 160k in March (ex census definition). If someone as pathologically lazy as me can find the relevant BLS webpage after a quick call to the BLS (link), why can't the market? Because it is bad news, that's why.


In the absence of a cyclical recovery I cannot see how QE is any different in its ability to revive asset prices than lower rates in anything other than a temporary fashion. (Interestingly many of our clients think QE2 might give a temporary fillip to the risk assets but that the subsequent failure to produce any cyclical impact will cause an extremely violent reaction as investors lose faith in QE as a policy tool and Central Banks in general.)

If we plunge back into recession, do not place too much confidence in the Central Banks having control of events. As my colleague, Dylan Grice, said last week "let them keep pressing their buttons." Ultimately they cannot fool all of the investors, all of the time.

Check out the actual article.  The charts are quite illustrative.


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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...


Was it Joe Kennedy who said that when he started getting stock tips from his shoe-shine boy he knew it was time to get out of the market?  

We are not there yet, but as main-stream coverage increases, and, the economy gets worse, I suspect that late comers could cause a spike.  The government's reaction will be interesting to see.


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Re: Greenspan calls for tax hike

"I don't think we have time to wait," Greenspan said. "Our choice is not between good and bad, it's between terrible and worse."

   Was he talking about the choice between spending cuts and tax hikes, or was he talking about the choice between Greenspan and Bernanke?

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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

The Yen vs the USD should be in the news today or tomorrow, shouldn't it? I think this is a significant turning point towards a stonger USD and more deflation.

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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

They say today's buyers are only looking for great deals, so if you price the home at its actual value, nobody's interested. You have to go below.

          Someone might want to let them know that if "nobody's interested" at the price they believe it is worth, then the "actual value" is what someone will pay. 

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Peter Smith
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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

The quickest way to poverty is single motherhood, a large percentage of families in poverty are housholds headed by single mothers.  I was not at all suprised to see the photo accompanying the article, 4 kids, 5? 

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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...
Peter Smith wrote:

The quickest way to poverty is single motherhood, a large percentage of families in poverty are housholds headed by single mothers.  I was not at all suprised to see the photo accompanying the article, 4 kids, 5? 

Radical causes demand radical solutions. Mandatory paternity testing and wage garnishment of biological fathers' wages to support children of single mothers.


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Re: Daily Digest 9/15 - Poverty In The Recession, Aging ...

Free birthcontrol and free sterilization, too.

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