California pensions next state financial crisis

SAN FRANCISCO (Reuters) - On the heels of closing a $24 billion state budget deficit, California faces new financial trouble -- from its public pensions.

The loss incurred by California's biggest pension fund in the last year is more than half the size of the state's spending plan, and financial analysts say the market on its own will keep the pension hole open for years or longer, a challenge public pension funds across the United States will also face.

"Pensions will be a major issue, sooner more likely than later, because they're going to bankrupt many jurisdictions," said Bob Stern of the Center for Governmental Studies in Los Angeles.

Governor Arnold Schwarzenegger on Saturday in a radio address put the California Public Employees' Retirement System, the biggest U.S. public pension fund that is best known as Calpers, on notice that its cost to the state government is in his sights.

"In these challenging economic times, we cannot afford everything we have funded in the past," he said. "And we will take on pension reform to cut down on unfunded liabilities and save the state billions of dollars."

By Monday, Calpers officials were discussing how to respond to Schwarzenegger -- and others who may take aim at the fund.Full Story

Whats Going with 5 Years Treasuries

AZ State Govt Building For Sale !!!!

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis in a generation, if not ever. The plan isn't to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

For investors, the arrangement means long-term lease payments from a stable source.

Once any deals are approved, money could begin flowing into state coffers in as little as 90 days.

The plan has bipartisan backing, but that doesn't make the prospect of paying rent for buildings once owned free and clear by taxpayers any easier to swallow.

"We've mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are.

"To me, it's something we're going to have to do no matter how much we find it undesirable."Full Story

No escape for Fed

In contrast to Federal Reserve chairman Ben Bernanke's testimony last week, we cannot see a safe "exit strategy" for the Fed from its current loose monetary policy. Bernanke's ambivalent testimony of a safe exit strategy can only heighten uncertainty and exacerbate instabilities. Let's explain.

In his recent testimony on July 21 before the Committee on Financial Services of the House of Representatives, Bernanke was felicitous that aggressive money policy had averted the collapse of the financial system. However, he omitted to say that the same policy had failed to avert a collapse of real gross domestic product (GDP) and private investment and rising unemployment.

The economic recession continues despite interest rates being near-zero, money supply rising at 22% a year, unprecedented stimuli packages, and record fiscal deficits reaching 13% of GDP in 2009. Bernanke and President Barack Obama's team had clearly believed that a combination of aggressive money and fiscal policies would secure the return to full-employment and quickly. After all, Larry Summers had predicted the unemployment cresting at about 8%. These expectations were standard Keynesian predictions that have proven to be substantially off the mark. Full Story