The Collapse of the U.S. Economy and Government Finances
46 of 50 States Could File Bankruptcy in 2009-2010
January 30, 2009Freedom Arizona - There is a high chance a majority of the States within the United States of America could file for Chapter 9 bankruptcy... It’s very possible you’ll see the end of the United States as we know it. If the Fed doesn’t bailout the States when their cash dries up and the banks don’t loan them money, then our States will be left in financial ruin. This would be a tragic and unprecedented event never experienced in the United States. No State has ever filed bankruptcy, but it could be coming to a State near you this year. We are on the brink of something far worse than the Great Depression.
GDP Sees Biggest Drop in 27 Years
January 30, 2009Reuters - The U.S. economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed on Friday, sinking deeper into a recession that the White House said demands urgent action. In a report that showed a broad-based contraction across nearly all sectors, the Commerce Department said gross domestic product shrank at a 3.8 percent annual rate, the biggest contraction since the first three months of 1982.
President Barack Obama, who is pushing Congress to approve a package of spending and tax cut measures that could cost close to $900 billion, said the report highlighted the need for quick government action...
Postmaster General: Mail Days May Need To Be Cut
January 28, 2009AP - Massive deficits could force the post office to cut out one day of mail delivery, the postmaster general told Congress on Wednesday, in asking lawmakers to lift the requirement that the agency deliver mail six days a week...
Yearly Mexican Remittances Drop for 1st Time
January 26, 2009AP - The money sent home by Mexican migrants fell in 2008 for the first time on record, Mexico's central bank said Tuesday — part of a global trend that could worsen as emigrants from developing countries lose jobs in the global financial crisis.
Remittances, Mexico's second-largest source of foreign income after oil, plunged 3.6 percent to $25 billion in 2008 compared to $26 billion for the previous year, the central bank said. The percentage drop is nearly twice what the government had expected for the year, and central bank official Jesus Cervantes said the decline will likely continue this year.
Experts blame a crackdown on illegal immigration that has stemmed the flow of those heading north to seek work as well as the U.S. recession, in which many Mexicans, especially construction workers, have been laid off.
It was the first time remittances have fallen year-to-year since the bank starting tracking the money 13 years ago. Mexico is not alone: After several years of strong growth, remittance flows to developing countries around the world slowed in the third quarter of 2008. They are expected to drop even further this year in response to the global crisis, World Bank economist Dilip Ratha said Tuesday.
More Retail Store Closings
January 20, 2009Forbes - Store closings and bankruptcies will hit a host of well-known stores in the coming year. Expect closings and bankruptcies to rattle the likes of Lane Bryant, Gap (nyse: GPS - news - people ), and Starbucks (nasdaq: SBUX - news - people ). It's the inevitable counterpunch to the days of retailers fighting hand over fist for market share during an era of loose credit and minuscule interest rates.
Those days are over, probably for a long time. While accelerating unemployment will only last so long, consumers' debt loads and credit access don't figure to recover to pre-party levels for quite awhile...
U.S. Losses May Reach $3.6 Trillion
January 20, 2009Bloomberg - U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.
“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis...”
"The Market Could Tank" After the Inauguration of Obama
January 17, 2009Most Americans have been told by the Bush administration and the talking heads that things will get worse for a couple of months, but then the economy will start to turn around and improve in the second half of 2009 after Bushco and Obamaco's bailout and stimulus programs kick in. In fact, the smart money is saying that the exact opposite will happen...
California to Suspend Welfare Checks
January 17, 2009The state will suspend tax refunds, welfare checks, student grants and other payments owed to Californians starting Feb. 1, Controller John Chiang announced Friday. Chiang said he had no choice but to stop making some $3.7 billion in payments in the absence of action by the governor and lawmakers to close the state's nearly $42-billion budget deficit. More than half of those payments are tax refunds...
Obama Says He Expects Deficit to Approach $1 Trillion
January 6, 2009Reuters - President-elect Barack Obama said on Tuesday that he expects to inherit a U.S. budget deficit approaching $1 trillion and that his administration would have to make some tough budget choices.
Just after meeting with his economic team, Obama said it was possible that trillion-dollar deficits could stretch into coming years and that he and his team want to instill a "sense of responsibility" about future budget choices.
Obama, who takes over from President George W. Bush on Jan. 20, is seeking quick action from Congress on a package of spending and tax-cut measures that would total nearly $800 billion over next two years...
U.S. Debt Expected To Soar This Year
January 3, 2009Washington Post - The national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world’s appetite for financing U.S. government spending.
U.S. Manufacturing at Lowest Level Since 1948
January 2, 2009Bloomberg - The decline in U.S. manufacturing deepened in December as demand for such products as cars, appliances and furniture reached the lowest level since at least 1948, signaling further cutbacks in factory jobs and production this year.
Ford Sees Sharp Drop in U.S. Sales, No Q1 Rebound
January 2, 2009Reuters - Ford Motor Co. expects industrywide December U.S. auto sales to drop by some 35 percent from a year earlier with no sign of a turnaround in the first quarter of 2009.
Ford, the No. 2 U.S. automaker, expects that full-year industrywide sales of light vehicles in the world's largest market will drop to near 13.2 million for 2008, down from near 16.2 million in 2007, Ford's chief sales analyst George Pipas said on Friday.
The only other time the U.S. auto industry has seen a similar 3-million unit plunge in sales over the course of a single year was during 1974 in the wake of the first oil shock, Pipas told reporters. "We're not looking for the first quarter to be much different from what we saw in the fourth quarter," Pipas said in a briefing with reporters.
Holiday Sales Drop to Force Bankruptcies, Closings
December 29, 2008U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years...
Wall Street: 2008 Year of Record Losses
December 28, 2008NEW YORK – Investors are preparing to close out the last three trading days of 2008, a year in which Wall Street has logged its worst performance since Herbert Hoover was president.
The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent...
Cash-strapped States Weigh Selling Roads, Parks
December 27, 2008ST. PAUL, Minn. – Minnesota is deep in the hole financially, but the state still owns a premier golf resort, a sprawling amateur sports complex, a big airport, a major zoo and land holdings the size of the Central American country of Belize.
Valuables like these are in for a closer look as 44 states cope with deficits.
Like families pawning the silver to get through a tight spot, states such as Minnesota, New York, Massachusetts and Illinois are thinking of selling or leasing toll roads, parks, lotteries and other assets to raise desperately needed cash.
Minnesota Gov. Tim Pawlenty has hinted that his January budget proposal will include proposals to privatize some of what the state owns or does. The Republican is looking for cash to help close a $5.27 billion deficit without raising taxes.
GOP lawmakers are pushing to privatize the Minneapolis-St. Paul International Airport and the state lottery. Both steps require a higher authority — federal legislation in the case of the airport, a voter-approved constitutional amendment for the lottery. But one lawmaker estimated an airport deal could bring in at least $2.5 billion, and the lottery $500 million.
Massachusetts lawmakers are considering putting the Massachusetts Turnpike in private hands. That could bring in upfront money to help with a $1.4 billion deficit, while also saving on highway operating costs.
In New York, Democratic Gov. David Paterson appointed a commission to look into leasing state assets, including the Tappan Zee Bridge north of New York City, the lottery, golf courses, toll roads, parks and beaches. Recommendations are expected next month.
Such projects could be attractive to private investors and public pension funds looking for safe places to put their money in this scary economy, said Leonard Gilroy, a privatization expert with the market-oriented Reason Foundation in Los Angeles. "Infrastructure is more attractive today than ever," Gilroy said. "It's tangible. It's a road. It's water. It's an airport. It's something that is — you know, you hear the term recession-proof."
Unions don't like privatization deals out of fear that worker wages and benefits will be squeezed as private operators try to boost their profit by streamlining services. Taxpayers, too, can lose out if the arrangements don't work — and sometimes even if they do, said Mark Price, a labor economist with the Keystone Research Center in Harrisburg, Pa. Higher tolls on privatized roads can push drivers onto state-operated roads, wearing them down faster and raising public costs over time. "You're privatizing some profits in this process and socializing some losses," Price said.
Selling or leasing public assets can produce an immediate infusion of cash for the state, while foisting the tough decisions, such as raising tolls, onto private operators instead of the politicians. "The downsides are often after they leave office," said Phineas Baxandall, a researcher with the consumer-oriented U.S. Public Interest Research Group in Boston. Some states struck major privatization deals well before the economic crisis hit...
Hospitals Ill from More Bad Debt, Credit Troubles
December 27, 2008TRENTON, N.J. (AP) - Like many U.S. hospitals, Gainesville's first community hospital is being squeezed by tight credit, higher borrowing costs, investment losses and a jump in patients—many recently unemployed or otherwise underinsured—not paying their bills.
All that has begun to trigger more hospital closings—from impoverished Newark, N.J., to wealthy Beverly Hills, Calif.—as well as layoffs, other cost-cutting and scrapping or delaying building projects.
More closings and mergers are on the way, industry consultants predict. "They'll get swallowed up by somebody else, if they need to exist, and if they don't, they'll just close," said Tuck Crocker, vice president of the health care practice at management consultant BearingPoint.
Most endangered are rural hospitals and urban ones in areas with excess hospital beds and a lot of poor, uninsured patients...
Dollar Shift: Chinese Pockets Filled as Americans’ Emptied
December 26, 2008In March 2005, a low-key Princeton economist who had become a Federal Reserve governor coined a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending. The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.
This colossal credit cycle could not last forever, he said. But in a global economy, the transfer of Chinese money to America was a market phenomenon that would take years, even a decade, to work itself out. For now, he said, “we probably have little choice except to be patient.”
Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences, having been promoted to chairman of the Fed in 2006, as these cross-border money flows were reaching stratospheric levels.
In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.
China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways. “This was a blinking red light,” said Kenneth S. Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund. “We should have reacted to it.”
In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy...
After-Christmas Shopping Unlikely to Save Season
December 26, 2008The holiday shopping season was one of the most dismal in years and even the after-Christmas period, when consumers normally rush to stores to use gift cards and seize on big sales, isn't expected to be enough to save retailers from a terrible year.
Holiday sales typically account for 30 percent to 50 percent of a retailer's annual total. But shoppers cut back their spending this year as they struggled with job cuts, home foreclosures, portfolio losses and other economic woes.
Analysts have kept slashing their holiday estimates. Michael P. Niemira, chief economist at the International Council of Shopping Centers, now expects that sales at established stores for November and December will fall 1.5 percent to 2 percent - which would make it the weakest holiday season since at least 1969, when the index began...
Treasury Bills Trade at Negative Rates
December 10, 2008Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.
The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.
“It’s the year-end factor,” said Chris Ahrens, an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.”
The benchmark 10-year note’s yield tumbled 11 basis points, or 0.11 percentage point, to 2.63 percent at 4:48 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 31/32, or $9.69 per $1,000 face amount, to 109 23/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.
The two-year note’s yield fell 10 basis points to 0.84 percent. It dropped to a record low of 0.77 percent on Dec. 5.
If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.
Now the Crunch Hits the Ivy League
December 4, 2008America's Ivy League universities have found themselves in a financial tangle after massive bets in the markets that once made them the envy of their peers turned spectacularly sour. The elite colleges are being forced to cut costs, limit salaries, freeze staff hiring and delay major expansion projects, because the value of their multi-billion dollar endowments have plunged.
One by one, the leaders of these universities have announced austerity measures, and the capitulation of Harvard this week has put the spotlight on arch-rival Yale, which is so far holding out against the economic tide. Yale says it will re-evaluate its budgets in the New Year to reflect the unfolding economic crisis.
Harvard, meanwhile, is considering halting campus expansion plans and delaying filling academic posts after admitting its endowment fund had lost $8 billion in just the past four months, with more losses expected in the coming weeks. A fund that was $36.9 billion in June could be down 30 percent by the end of the financial year, its managers warned.
Store Closings: Symptoms of a Depressed Economy
December 2, 20081. Ann Taylor closing 117 stores nationwide - A company spokeswoman said the company hasn’t revealed which stores will be shuttered. It will let the stores that will close this fiscal year know over the next month.
2. Eddie Bauer to close more stores - Eddie Bauer has already closed 27 shops in the first quarter and plans to close up to two more outlet stores by the end of the year.
3. Cache closing stores - Women’s retailer Cache announced that it is closing 20 to 23 stores this year.
4. Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide - The owner of retailers Lane Bryant , Fashion Bug , Catherines Plus Sizes will close about 150 underperforming stores this year. The company hasn’t provided a list of specific store closures and can’t say when it will offer that info, spokeswoman Brooke Perry said today.
5. Talbots, J. Jill closing stores - About a month ago, Talbots announced that it will be shuttering all 78 of its kids and men’s stores. Now the company says it will close another 22 underperforming stores. The 22 stores will be a mix of Talbots women’s and J. Jill, another chain it owns. The closures will occur this fiscal year, according to a company press release.
6. Gap Inc. closing 85 stores - In addition to its namesake chain, Gap also owns Old Navy and Banana Republic. The company said the closures - all planned for fiscal 2008 - will be weighted toward the Gap brand.
7. Foot Locker to close 140 stores - In the company press release and during its conference call with analysts today, it did not specify where the future store closures - all planned in fiscal 2008 - will be. The company could not be immediately reached for comment
8. Wickes is going out o f business - Wickes Furniture is going out of business and closing all of its stores, Wickes, a 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
9. Levitz - The furniture retailer, is going out of business. Levitz first announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910 when Richard Levitz opened his first furniture store in Lebanon , PA. In the 1960s, the warehouse/showroom concept brought Levitz to the forefront of the furniture industry. The local Levitz closures will follow the shutdown of Bombay.
10. Zales, Piercing Pagoda closing stores - The owner of Zales and Piercing Pagoda previously said it plans to close 82 stores by July 31. Today, it announc ed that it is closing another 23 underperforming stores. The company said it’s not providing a list of specific store closures. Of the 105 locations planned for closure, 50 are kiosks and 55 are stores.
11. Disney Store owner has the right to close 98 stores - The Walt Disney Company announced it acquired about 220 Disney Stores from subsidiaries of The Children’s Place Retail Stores. The exact number of stores acquired will depend on negotiations with landlords. Those subsidiaries of Children’s Place filed for bankruptcy protection in late March. Walt Disney in the news release said it has also obtained the right to close about 98 Disney Stores in the U.S. The press release didn’t list those stores.
12. Home Depot store closings - ATLANTA - Nearly 7+ months after its chief executive said there were no plans to cut the number of its core retail stores, The Home Depot Inc. announced Thursday that it is shuttering 15 of them amid a slumping U.S. economy and housing market. The move will affect 1,300 employees.
It is the first time the world’s largest home improvement store chain has ever closed a flagship store for performance reasons. Its shares rose almost 5 percent. The Atlanta-based company said the underperforming U.S. stores being closed represent less than 1 percent of its existing stores. They will be shuttered within the next two months.
13. CompUSA clarifies details on store closings - Any extended warranties purchased for products through CompUSA will be honored by a third-party provider, Assurant Solutions. Gift cards, rain checks, and rebates purchased prior to December 12 can be redeemed at any time during the final sale. For those who have a gadget currently in for service with CompUSA, the repair will be completed and the gadget will be returned to owners.
14. Macy’s - 9 stores
15. Movie Gallery - 160 stores as part of reorganization plan to exit bankruptcy. The video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall.
16. Pep Boys - 33 stores
17. Sprint Nextel - 125 retail locations - New Sprint Nextel CEO Dan Hesse appears to have inherited a company bleeding subscribers by the thousands, and will now officially be dropping the ax on 4,000 employees and 125 retail locations. Amid the loss of 639,000 postpaid customers in the fourth quarter, Sprint will be cutting a total of 6.7% of its work force (following the 5,000 layoffs last year) and 8% of company-owned brick-and-mortar stores, while remaining mute on other rumors that it will consolidate its headquarters in Kansas. Sprint Nextel shares are down $2.89, or nearly 25%, at the time of this writing.
18. J. C. Penney, Lowe’s and Office Depot are scaling back.
19. Ethan Allen Interiors - The company announced plans to close 12 of 300+ stores in an effort to cut costs.
20. Wilsons the Leather Experts - 158 stores.
21. Pacific Sunwear will close its 154 Demo stores after a review of strategic alternatives for the urban-apparel brand. Seventy-four underperforming Demo stores closed last May.
22. Sharper Image - The company recently filed for bankruptcy protection and announced that 90 of its 184 stores are closing. The retailer will still operate 94 stores to pay off debts, but 90 of these stores have performed poorly and also may close.
23. Bombay Company - The company unveiled plans to close all 384 U.S.-based Bombay Company stores. The company’s online storefront has discontinued operations.
24. KB Toys posted a list of 356 stores that it is closing around the United States as part of its bankruptcy reorganization. To see the list of store closings, go to the KB Toys Information web site, and click on Press Information.
25. Dillard’s to Close More Stores - Dillard’s Inc. said it will continue to focus on closing underperforming stores, reducing expenses and improving its merchandise in 2008. At the company’s annual shareholder meeting, CEO William Dillard II said the company will close another six underperforming stores this year.
Retailers and Bankruptcy
December 2, 2008
Consumer confidence hit an all-time low in October, according to research group the Conference Board. The holidays are soon upon us, and retailers have gone bust amid these tumultuous economic times. Here's a look back at some of The Deal's retail bankruptcy coverage and thoughts on what might be in store for some not yet bankrupt but possibly teetering.
Circuit City
Claire's Stores
Fortunoff
Goody's Family Clothing
Harold's Stores
Levitz
Lillian Vernon
Linens 'n Things
Mervyn's
Pier 1
RedEnvelope
Sharper Image
Steve & Barry's
Value City
Whitehall
Sears Suffers 3Q Loss on Weak U.S., Kmart Sales
December 2, 2008Sears Holdings Corp. said Tuesday hefty charges and weak results at its U.S. department stores and Kmart locations drove it to post a much wider-than-expected third-quarter loss, and the retailer withdrew its operating profit outlook due to the severe economic downturn.
Sears reported a loss of $146 million, or $1.16 per share, compared with year-ago profit of $4 million, or 3 cents per share. Excluding a hefty charge related to 14 store closings and gains on Sears Canada hedges, Sears posted a loss of 90 cents per share in the latest period. Revenue dropped 8 percent to $10.66 billion from $11.62 billion as Sears U.S. same-store sales slid 10.6 percent and Kmart same-store sales slipped 7 percent. Total same-store sales, or sales at stores open at least a year, a key retail gauge, fell 9 percent. Analysts surveyed by Thomson Reuters expected a much smaller loss of 49 cents per share on higher revenue of $10.93 billion.
Sears said it will take a pretax charge of $21 million in the fourth quarter, related to the closing of eight underperforming stores. The company said it will continue to evaluate additional store closings or divestitures, remodels, acquisitions and stock and debt repurchases to boost financial flexibility.
U.S. Manufacturing Hits 26-year Low
December 2, 2008US manufacturing slumped to a 26-year low in November, highlighting the abrupt downturn in the world’s biggest economy, a survey showed Monday.
The Institute of Supply Management said its manufacturing index slumped 2.7 points to 36.2 percent, far below the 50 percent level that separates expansion and contraction. The level was the lowest since May 1982.
New orders fell even further to a level of 27.9 percent, suggesting the worst may not be over yet for the sector. "When comparing November to October, the (index) indicates a continuing rapid rate of contraction in manufacturing," said ISM survey chief Norbert Ore. "New orders have contracted for 12 consecutive months, and are at the lowest level since June 1980 when the index registered 24.2 percent."
"The manufacturing recession deepened further in November," said economist Peter Kretzmer at Bank of America. "Orders plummeted at an increasing pace, and input prices continued their accelerating pace of decline. Both import and export orders also continued to fall."
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