California, Whose Next ?

Deep cuts in California services inevitable, state leaders say

Gov. Arnold Schwarzenegger and legislative leaders vowed deep cuts to public services Wednesday in response to voters' rejection of ballot measures to ease the state's gaping budget hole.

The Republican governor vowed to "go all out" in slashing government spending after voters killed a slate of proposals that would have lessened, but not ended, the fiscal hemorrhaging.

"We tried not to make those kind of cuts, but now we have to," the Republican governor told reporters in Washington.

"There's no other choice," he said. "I think the message was clear from the people: Go all out and make those cuts and live within your means." Full Story

Barter System Booming

Barter system booms in Colorado

Unemployed since November, Eugene Sobczak wanted nothing more than to aid another cash-strapped soul, gratis, when he read the online ad asking for help attaching a car bumper.

Instead, he got an unexpected lesson in barter, that most basic form of exchange that has gained renewed popularity in a down economy — and forged friendships along the way.

Ryan Lee, who was laid off late last year, had bought his new bumper online after an accident and was grateful for Sobczak's help. But he wasn't looking to get something for nothing.

The two men got to chatting.

"That's when I found out he was an artist," said Sobczak, 41, a former telecommunications worker from Broomfield. "I had need of a good painting or two." Full Story

Pensions Funds Going Bust

U.S. Insurer of Pensions Sees Flood of Red Ink

WASHINGTON — The deficit at the federal agency that guarantees pensions for 44 million Americans tripled in the last six months to a record high, reaching $33.5 billion, largely as a result of surging bankruptcies among companies whose pensions it expects it will soon need to take over.

The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday.

Because the agency has $56 billion in assets — most of which is invested in Treasury bonds — it is not facing any prospect of default in the short term, officials said.

“The P.B.G.C. has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” the agency’s acting director, Vince Snowbarger, testified Wednesday at a Senate hearing. “Nevertheless, over the long term, the deficit must be addressed.” Full Story

Dollar Free Fall

LONDON -- The U.S. dollar could be on the brink of a major drop in value as investors and central bank reserve managers start to question their appetite for Treasurys and the greenback's safe-haven status wears off, prominent currency watchers warn.

The euro and even embattled sterling have shot higher against the U.S. currency in recent days despite a lack of meaningfully positive economic news.

Now some heavyweight strategists think the euro could sweep up to 9% higher against the dollar in a matter of weeks, in a move that could prompt a new era of official intervention in the Full Story

WoW World Economies Plummet

By BOB DAVIS

Steep declines in the economies of three of the U.S.'s biggest trading partners -- Mexico, Japan and Germany -- underscored the severity of the global recession and put pressure on major industrialized nations to revive moribund global trade talks.

On Wednesday, Mexico became the latest country to report a plunge in output. The country's gross domestic product fell at an annualized rate of 21.5% in the first quarter, the worst performance since the 1995 peso crisis led to an International Monetary Fund and U.S. Treasury financial rescue. This time, Mexico has insulated itself somewhat by arranging a $47 billion IMF credit line in advance.

Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.Full Story

IMF: Banks nationalization

More banks may have to be nationalised, says IMF

Alistair Darling must stand ready to pump more capital into Britain's beleaguered banks, perhaps
nationalising other high street names, the International Monetary Fund has warned.The Fund believes that although the drastic measures to prop up Royal Bank of Scotland, Lloyds Banking Group and other major lenders had prevented them from collapse, more public money needs to be poured in if the economy is to get back to full strength. The alternative is a "zombie" recovery as banks continue to withhold lending for years, the IMF has told the Treasury.

The warning formed part of a stark assessment of the UK economy. In a double-pronged assault on the Budget, the Fund praised some of the rescue plans but dismissed the Chancellor's claim that the recession will be over by Christmas. It said he must start paying back debt significantly earlier than he projected last month. Full Story

S&P downgrades UK outlook

S&P downgrades UK outlook

By David Oakley, George Parker and Daniel Pimlott
Published: May 21 2009 10:10 | Last updated: May 21 2009 12:14

Sterling was hit on Thursday after the outlook for the UK economy was thrown into doubt when the country’s sovereign debt ratings were revised from stable to negative by Standard & Poor’s.S&P’s move is highly embarrassing for the Treasury and will give ammunition to the opposition Conservative party, which argues that the government is presiding over a growing and unstable mountain of debt.

Sterling fell 1.2 per cent against the dollar and 1.4 per cent against the euro at one point before recovering. UK shares and bonds also recovered after falling sharply on the S&P announcement.The downgrade of the UK’s outlook came as figures showed that public spending rose and tax revenues fell in April, keeping public sector borrowing on course to reach the dire levels forecast by the government forecast in the Budget. Full Story