Important News - Dec. 18

• 1) ‘Shadow Inventory’ of U.S. Homes Climbs, Report Says

“Dec. 17 (Bloomberg) — The number of homes that may be in the pipeline for a sale because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September, according to estimates by First American CoreLogic. ”

• 2) Yuan Can Be ‘3rd Pillar’ of Finance System, Yam Says

“Dec. 18 (Bloomberg) — Hong Kong’s former central bank chief Joseph Yam said that the yuan can become the “third pillar” of the global monetary system as deteriorating public finances erode confidence in the dollar and the euro.

“Large budget deficits and public debt, and structural problems in the financial system, mean that the two pillars are not resting on sound foundations,” he said at a financial conference today in Beijing. “There is a need for a third currency to serve as a third pillar, which would also give an opportunity for the two weak pillars to heal.” ”

• 3) City of Petaluma’s fiscal time bomb

“The unfunded pension liability of cities and counties in California is a fiscal time bomb, and Petaluma may be one of the first to explode given its increasingly precarious financial plight.

Over the six-year period from 2002 to 2008, the city’s unfunded pension obligation to its retired employees more than tripled, ballooning from $9 million to $28.5 million.”

• 4)  Home Prices Without Fed Support

“The big test for home prices will come next spring when the U.S. starts to withdraw from the market

The U.S. housing market has been on government life support for much of 2009. Thanks to the feds’ bounty of tax credits, purchases of mortgage securities, interest-rate cuts, and home loan programs, new and existing home sales are up. The median home price rose, to $177,900. What happens in 2010 depends on whether the market can stand on its own. ”

• 5) States Scramble to Close New Budget Gaps (Wall Street Journal)

“Previous Fixes Fall Victim to Sagging Revenue, Political Fights and Court Rulings; Ohio Finds Itself $851 Million Short

The patches used by states on their ailing budgets just months ago are now failing.

Ohio lawmakers were expected late Thursday to vote on a compromise reached with Gov. Ted Strickland to avoid cutting education budgets an average of 10% on Jan. 1. In Arizona, lawmakers met in a special session Thursday — their fourth on the budget this year — to grapple with a new deficit. And in New York, Democratic Gov. David Paterson said Sunday he would postpone paying $750 million of state bills to avert a cash crunch.”

…………5A) Weekly wrap: Governors offering dire spending plans

(Click the link and scroll down to see details on a few of the states)

“One by one, America’s governors are beginning to prepare their constituents for a dark year ahead, even as the economic recovery gets under way.

With many legislatures convening in a few weeks, governors are offering bleak budgets for the next fiscal year calling for deeper spending cuts and, in some cases, tax increases.

Their despair is plain. They say they already have cut spending to the bone and do not want to have to increase taxes on people still suffering from the effects of the recession. But tax revenues are still in free fall in many states, and the federal economic stimulus money is running out. ”

• 6)  Homeowners often rejected under Obama’s loan plan

“To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That’s averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.”

• 7) California’s pension crisis (This one is a must read)

“Some other states are also wrestling with retirement costs. But California is the only one that allows nearly all public safety workers to retire at age 50 with 90 percent of their salaries.”

“In the ten years since the pension increase was adopted, payouts by the California Public Employees’ Retirement System have more than doubled, to $10.8 billion, while resources fell from an actuarial surplus of $32.8 billion to an actuarial unfunded liability of $35 billion in 2008.

CalPERS prefers a different number for its unfunded liability – $30.3 billion – a calculation that includes the market value of its assets. The state Legislative Analyst has criticized CalPers for using conflicting figures – obscuring the true cost of the pensions.

Former legislators say they were assured by CalPERS in 1999 that the state’s share of the liberalized pensions would reach $300 million at most. According to CalPERS most recent numbers, the pensions are now costing the state $3 billion a year.

Municipalities are not doing much better.”

• 8) Harvard Swaps Are So Toxic Even Summers Won’t Explain

“The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school suspended work on the building last week.”

• 9) China Faces Crash Scenario (Mish…This one is another must read)

“Problems in China continue to mount. Money supply is growing rampantly out of control, property prices are in a bubble, exports are weak, commodity speculation is pervasive, and GDP growth is more of a mirage than real.”

• 10) Midnight in the food-stamp economy (Reuters)

“”Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up,” says Tom Schoewe, Wal-Mart Stores Inc’s chief financial officer.

As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business.

From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America.”

(Here’s their graph for the number of people on food stamps)