Must-Know News – May 17, 2010 – The Great Recession Is Turning Into An Other Great Depression.

“May 17 (Bloomberg) — The euro will be on par with the U.S dollar “sooner or later” as the region’s debt crisis worsens, according to Christopher Wood, chief equity strategist at CLSA Asia Pacific Markets.”

“Gold prices may reach at least $3,500 in the “bull market” for the commodity, according to Wood, three times more than the current value.

“The minimum target for gold in this bull market is $3,500,” Wood said. “Gold will go parabolic when the dollar ceases to become reserve currency.””

“May 17 (Bloomberg) — Europe’s sovereign debt crisis is prompting some of the Treasury market’s biggest bears to reverse calls for Federal Reserve interest-rate increases this year.

Morgan Stanley, Wrightson ICAP and Pierpont Securities LLC say the Fed will keep interest rates near zero percent after the European Union unveiled an almost $1 trillion loan package to halt a slide in the euro and local bonds that threatened to shatter the currency union. Futures show traders place a 40 percent likelihood that the central bank will raise borrowing costs by December, down from 73 percent a month ago.”

“The pound plunged to a 14-month low against the dollar on Monday as fears escalated over the UK government’s financial position.

Sterling fell after George Osbourne, the UK’s new chancellor, told the Financial Times that the former Labour government had “fiddled” forecasts in order to allow it to present the sort of spending plans that “it wanted to present”.

Concerns over the UK’s record fiscal deficit also heightened on reports that the new UK government had accused the previous Labour administration of pursuing a “scorched earth policy” before the general election, leaving behind billions of pounds of previously hidden spending commitments.

The reports raised fears that the UK could experience heightened difficulties in raising funds in the market in the future.”

“May 17 (Bloomberg) — Money markets are showing rising levels of mistrust between Europe’s banks on concern an almost $1 trillion bailout package won’t prevent a sovereign debt default that might trigger a breakup of the euro.

Royal Bank of Scotland Group Plc and Barclays Plc led financial firms punished by rising borrowing costs, British Bankers’ Association data show. The cost to hedge against losses on European bank bonds is 63 percent higher than a month ago. Investment-grade corporate debt sales in the region plummeted 88 percent last week to $1.2 billion from the previous period, according to data compiled by Bloomberg. ”

…………………4A) Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show

“The euro750 billion ($1 trillion U.S.) shock-and-awe rescue package to prevent the Greek debt crisis from spreading only bought eurozone countries more time, it didn’t solve their underlying debt problems, German Chancellor Angela Merkel and a European Central Bank official said Sunday. ”

“Ms. Merkel also told union members that budget cuts in Germany are inevitable, calling the country’s own current debt level unsustainable. ”

“NEW YORK ( — For the fourth time this year, doctors face a potential huge cut in the fees that the government pays them to treat Medicare patients.

Physicians will be hit with a 21% cut in Medicare reimbursements as of June 1, unless lawmakers decide to patch over the issue — as they’ve done for years. Congress is now debating the matter, and to stop the cut lawmakers would have to vote to pass a new patch sometime in the next two weeks.”

“One possible outcome of the congressional wrangling is a five-year delay in the 21% cut in Medicare fees. That option, the most-discussed so far, would cost about $80 billion.

That spending would be exempt from a “pay as you go” law enacted in February that requires lawmakers to find ways to offset certain spending increases or tax cuts.”

“ALBANY — Gov. Paterson has put massive state employee layoffs “on the radar screen” after being told the no-layoff pledge he signed with public employee unions last year is not legally binding, The Post has learned.

The administration has estimated that up to 10,000 job cuts would be needed to reach the governor’s target, an official said.

Paterson’s new tack follows a federal court ruling last week that temporarily blocked his $30 million-a-week plan to put 100,000 workers on furlough.”

“LONDON (MarketWatch) — The cost of insuring non-core euro-zone government debt against default rose again Monday on growing fears about the depth of the region’s financial crisis. The spread on Greek credit default swaps widened to 625 basis points, up from 600 basis points at Friday’s close, according to Markit. That means it would cost $625,000 a year to insure $10 million of Greek debt against default, up $25,000 from Friday. The Spanish CDS spread rose to 185 basis points from 179, while the Portuguese spread widened to 255 from 242, Markit reported. Italy was 2 basis points higher at 142. CDS spreads for European banks widened in tandem with sovereign debt, Markit said.”

“LEWISTON – The Idaho Department of Health and Welfare is suspending Medicaid payments to certain providers until the first week of July.

The announcement came after the department discovered the Medicaid program will fall short of the state general fund requirements by millions of dollars.

“It’s not something that we want to do,” said District 1 & 2 Operations Manager Ron Beecher. “Over the years we’ve been able to be very prompt. Last year because of budget concerns we had to delay the payments by a week. This year the budget shortfall that we’re looking at is about $133 million and that’s very significant.”

“SACRAMENTO (MNI) – The Investment Committee of the California Public Employees’ Retirement System is reviewing forecasts of capital market returns Monday and in preparation for the discussions, the staff’s documents suggest looking at leveraged bonds to reduce equity risk and improve returns.

That alone indicates the staff might have some concern about the risk profile of Calpers’ portfolio allocation.

In documents in preparation for Monday’s investment committee meeting and subsequent public workshop, the staff also suggests Calpers might have to settle for a rate of return of its asset investments of less than 7.75%, which is the currently assumed rate of return.

“Return forecasts are lower and could result in expected portfolio returns lower than 7.75% going forward for current policy,” the staff wrote.

The documents also note that, “Equity risk premium and private equity premium have been key drivers of the Calpers portfolio, but are forecast to be lower.” ”

“San Francisco’s escalating yearly tab for pension costs for city workers could hit nearly $700 million in 2014 – an amount larger than the current annual operating budget for San Francisco General Hospital.

This year, the city contribution is less than $300 million, officials said.

City voters next month will be asked to change pension rules by shifting more of the funding burden onto city workers and away from the government treasury to save taxpayers between $300 million and $500 million cumulatively over the next 25 years, according to an analysis by the city controller. ”

“Harrisburg is insolvent. Our obligations exceed our assets. Despite passing a $64.7 million general fund budget, we will be fortunate if we collect $57 million in revenue this year.

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We began 2010 with a deficit of $7.7 million that must be addressed. Our insolvency becomes more glaring when we add the $68 million of guaranteed debt service payments required to pay for Harrisburg Authority debt. ”

“NEW ORLEANS (AP) — BP said Monday it was siphoning more than one-fifth of the oil that has been spewing into the Gulf for almost a month, as worries escalated that the ooze may reach a major ocean current that could carry it through the Florida Keys and up the East Coast.

BP PLC chief operating officer Doug Suttles said Monday on NBC’s “Today” that a mile-long tube was funneling a little more than 1,000 barrels — 42,000 gallons — of crude a day from a blown well into a tanker ship. The company and the U.S. Coast Guard have estimated about 5,000 barrels — 210,000 gallons — have been spewing out each day. Engineers finally got the contraption working on Sunday after weeks of failed solutions — however, millions of gallons of oil are already in the Gulf of Mexico.”

“(Reuters) – People are hoarding food. Schools and businesses have closed. Hotels are pleading for guests to leave. Across Bangkok, residents worry about escalating violence that has killed 37 people and wounded hundreds in four days.”

………………….14A) U.S., UK issue warnings on Bangkok and Thai Baht, Stocks Decline, Bond Risk Rises as Clash Worsens and Thailand Sets Mid-Afternoon Deadline to Evacuate Protest Site

“Defense Secretary Robert M. Gates has vowed to impose fiscal austerity at the Pentagon, but his biggest challenge may be persuading Congress to go along.

Lawmakers from both parties are poised to override Gates and fund the C-17 cargo plane and an alternative engine for the F-35 Joint Strike Fighter — two weapons systems the defense secretary has been trying to cut from next year’s budget. They have also made clear they will ignore Gates’s pleas to hold the line on military pay raises and health-care costs, arguing that now is no time to skimp on pay and benefits for troops who have been fighting two drawn-out wars.”

“(Reuters) – The U.S. economy has begun to climb out of the worst downturn since the 1930 Great Depression but still needs additional steps by the federal government to stem a crisis in the job market, a senior economic adviser to President Barack Obama said on Sunday.”

“Romer urged Congress to a pass a series of measures Obama has proposed to jump-start growth, including the establishment of a lending fund to spur credit to small businesses and providing cash-strapped cities and states with aid to help them avoid layoffs of teachers and other local employees.

With the U.S. unemployment rate just under 10 percent, the Obama administration is juggling the need to spur economic growth with pressure to rein in ballooning U.S. budget deficits.

Obama has named a bipartisan fiscal commission that will report back by December 1 with recommendations for curbing the deficit, which is projected to hit $1.6 trillion this year.”

“Dr. Robert R. Urzillo, Conrad Weiser School District superintendent, sees what’s coming, and it’s not good.

In the next few years, the amount his district – and districts across the state – will need to pay into the Pennsylvania School Employee Retirement System will skyrocket.

After increasing 4.78 percent for this school year, it will jump another 8.22 percent next year. For the 2012-13 school year, the increase will soar to 29.22 percent.

By 2014-15, Conrad Weiser payments into the pension system could top $3.2 million, over five times more than now.

“Obviously, such a dramatic spike will have devastating impacts for schools and taxpayers,” Urzillo said. “This is a crisis. This really is.”

What to do about a grossly underfunded state pension system is one of the biggest issues facing Pennsylvania. If nothing is done, local school officials said, it will cripple districts or force severe tax hikes.”

“Britain’s official public debt could double to almost £1.8 trillion pounds if the new government proceeds with plans to bring soaring private finance initiative (PFI) and pension liabilities onto the national accounts, experts have warned.

The move, being considered by chancellor George Osborne as part of his wide-ranging ‘audit’ of all public spending, includes plans to bring council PFI and town hall pension costs onto the national accounts to improve the transparency of future government finances.

Councils, and other local public bodies, have entered into a huge number of PFI-style projects for services such as libraries, roads programmes, schools and hospitals – and would contribute billions of pounds to more transparent borrowing figures.

But experts have warned that Britain risks undermining its economic recovery if it chooses to reveal levels of public debt far greater than the official figures currently show. Some experts within the City of London are concerned that Mr Osborne’s plan could undermine Britain’s cherished AAA credit rating, sparking fears of crucial international investment withdrawals.”

In a sign of the depth of the anxiety, the euro fell Friday to its lowest level since the depth of the financial crisis, as investors abandoned the currency as well as stocks in favor of gold and other assets seen as offering more safety.

As Chinese Collapse And Underwater Homeowners Send Us To New Lows

Here’s an uber-bear that doesn’t get much attention: David Hefty of Cornerstone Wealth Management.

  • Other news stories and headlines:

Euro Falls to Lowest Since April 2006 on European Debt Crisis

Ron Paul’s On Coming Hyperinflation (Youtube)

Greece to Get First EU Loans Tomorrow, Official Says

China Stocks Plunge Most Since August on Property Curbs, Europe and Chinese stocks slump over 5%, fall to year low

Series of lawsuits could cost Dallas $1 billion

Italy minister says no decision on cuts: report and Italy eyes €27.6 billion cuts to avoid debt crisis

Euro debt fears, ETF drive change in gold buying

New Univ. of Illinois president facing $375 million budget gap

Greek fiscal plan needs stimulus back-up -Papandreou

Debt-to-GDP ratio to rise to 58.4% (Philippines)

Survey shows risk of US municipal defaults

Real Estate: Commercial agents report earnings down by a third

Municipal Bonds: Derailed

Fresno wants homeowners to take over pruning

Florida Prison Population: Growing by Leaps and Bounds (Editorial)

Syracuse University grads warned at commencement to expect tough job market

– Saxplayer00o1


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