Economic Crisis Around The Globe Continues

The economic crisis around the globe is touching every country. Let's take a look at a few headlines. Note: Most of the snips below are small. To improve readability I am forgoing my usual blockquote style. My comments appear at the very end starting with a bold "My Comments"

United States

With wreckage piling up, Fed eyes another rate cut

Sunday October 26, 2:08 pm ET
WASHINGTON (AP) -- As the economic wreckage piles dangerously higher, the Federal Reserve is prepared to ratchet down interest rates -- perhaps to their lowest point in more than four years -- with the hope of relieving some of the pain felt by many Americans. Alan Greenspan, who ran the Fed for 18 1/2 years, called it a "once-in-a century credit tsunami," and conceded that he made mistakes that may have aggravated the economy's slump.

Vanishing jobs and shrinking paychecks have forced consumers to cut back sharply. Millions of ordinary Americans have watched their 401(k)s and other nest eggs shrink and the value of their homes drop, making them feel in even worse financial shape. In turn, businesses have cut back on hiring and other investments as customers hunker down and credit problems make it harder and more costly to get financing.

Canada

Canadian Dollar Falls for a Fourth Week; Government Bonds Gain

Oct. 25 (Bloomberg) -- Canada's dollar fell for a fourth week, its longest losing streak in almost a year, and two-year bond yields touched the lowest in almost two decades on speculation the economic slump will deepen and oil will decline.

Canada's currency, dubbed the loonie for the aquatic bird on the one-dollar coin, is poised for its worst month since at least 1950 after touching the lowest since September 2004 yesterday. It has declined 17 percent since September.

"We're right off the charts in terms of how big this decline is," said Doug Porter, deputy chief economist with BMO Capital Markets in Toronto. "We continue to see tremendous volatility in all financial markets and that's most definitely affecting the currency markets as well."

Germany

German minister: Crisis far from over

Germany's finance minister said in comments published Sunday that global financial markets could still collapse and that the situation remains dangerous despite government efforts to bailout lending institutions.

"The danger of a collapse is far from over. Any `all clear' would be wrong," Finance Minister Peer Steinbrueck told the Bild am Sonntag weekly. "We are still dealing with a very dangerous situation."

Ukraine

IMF offers $16.5 billion loan to Ukraine

NEW YORK (MarketWatch) -- The International Monetary Fund said Sunday it plans to lend $16.5 billion to Ukraine to support a policy package the country has assembled to maintain its economic and financial stability.

The package is designed to help the country following the collapse of steel prices and the global financial crisis, IMF Managing Director Dominique Strauss-Kahn said in a statement. The funding is contingent on approval by the body's executive board and would follow approval of legislative changes in Ukraine, the statement said.

Pakistan

Pakistan Extends August Stock Trading Curbs Until Oct. 31

Oct. 26 (Bloomberg) -- Pakistan extended trading restrictions on its stock market for the third time in a month to prevent a further slide. Since the curbs were imposed, Pakistan's credit rating has been cut, giving it the world's second-lowest grade.

South Korea

Bank of Korea Calls Emergency Meeting, May Lower Interest Rates

Oct. 27 (Bloomberg) -- The Bank of Korea monetary policy board called an unscheduled meeting for today, possibly to discuss an interest rate cut after the stock market lost a fifth if its value last week.

Israel

Bank of Israel May Cut Main Rate by a Quarter Point

Oct. 26 (Bloomberg) -- The Bank of Israel may lower the benchmark lending rate for a second time this month as global financial turmoil imperils domestic economic growth. Governor Stanley Fischer will cut the rate to 3.5 percent, according to eight of 14 economists surveyed by Bloomberg.

Fischer unexpectedly reduced the rate on Oct. 7 as the benchmark stock index fell to a two-year low because of the global credit crisis. The cut marked a turnaround for Fischer, who had raised the base rate four times earlier in the year in an effort to slow inflation.

Malaysia

Malaysia Holds Rate, Vows Action to Support Economy

Malaysia's central bank pledged it will take action to prevent the economy from deteriorating after keeping the benchmark interest rate unchanged for the 20th straight meeting.

"In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy," Bank Negara Malaysia said yesterday, after maintaining the overnight policy rate at 3.5 percent.

United Kingdom

U.K.'s Darling to Say Crisis to Be Deeper, Longer Than Expected

Oct. 26 (Bloomberg) -- The U.K. economy shrank in the second quarter, its first contraction in 16 years. Prime Minister Gordon Brown and Bank of England Governor Mervyn King admitted for the first time last week that Britain is heading for a recession, while Charlie Bean, the central bank's governor for financial stability, said in an Oct. 24 interview with the Scarborough Evening News that the turmoil in the banking industry is the worst ever.

"After 15 years of economic growth the party is over," Graeme Leach, the IoD's chief economist, said in an e-mailed statement. "Budget setting for 2009 is going to be a very tough process in order to squeeze out every possible cost saving."

Kuwait

Kuwait moves to prop up major bank after losses

Sunday October 26, 11:20 am ET
KUWAIT CITY (AP) -- Kuwait's Central Bank stepped in Sunday to prop up one of the country's biggest banks and said it was considering guaranteeing deposits in domestic banks -- in one of the first concrete signs that the global financial crisis may next hit the oil-rich Gulf.

The two moves came just a day after finance ministers from the six-nation Gulf Cooperation Council held an emergency meeting to echo assurances, which they have repeatedly voiced over the past few weeks, that the region's banks face no liquidity crisis.

Kuwait's decision to stop trading in shares of Gulf Bank sent a shock wave through the country's bourse, which closed down almost 3.5 percent and brought its year-to-date losses to over 19 percent.

"The halting of Gulf Bank shares spread panic in the bourse today, because the government has been saying banks are safe from (global financial crisis) losses," said investor Ahmed al-Fadhli in a telephone interview.

Saudi Arabia, Qatar, United Arab Emirates

Saudi Arabia Provides $2.67 Billion to Help Citizens

Oct. 26 (Bloomberg) -- The Saudi government will inject 10 billion riyals ($2.67 billion) into the government-run Saudi Credit Bank to provide no-fee loans to low-income citizens, Saudi Press Agency said, citing the finance minister.

The measure, ordered by King Abdulla of Saudi Arabia, follows last week's injection of about $5 billion in the form of deposits into Saudi commercial banks and a reduction in reserve requirement.

The Central Bank of Kuwait has taken measures to increase liquidity at commercial banks in recent weeks, including raising the loan-to-deposit ratio, cutting interest rates, injecting funds into the interbank market and, today guaranteeing commercial bank deposits. The United Arab Emirates said Oct. 12 that it would guarantee all bank deposits for three years.

The Qatar Investment Authority, the emirate's sovereign wealth fund, said Oct. 13 that it would acquire stakes in banks.

Japan

Japan's Bonds Complete Best Week Since June on Stocks Rout

Japan's 10-year bonds yesterday capped the biggest weekly gain since June as investors sought to preserve their capital amid a global stocks rout that wiped out more than $10 trillion of market value this month.

The yield on the 1.5 percent bond due September 2018 fell 9 basis points this week to 1.48 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.773 yen on the week to 100.172 yen. A basis point is 0.01 percentage point.

My Comments

Deflation is here. That fact can no longer be denied. Central bankers around the globe are fighting it. However, there is no reason to expect this economic crisis to abate anytime soon. The mother of all consumer led recessions is upon us and unemployment is going to soar as noted in Businesses Slash Jobs.

Until the crisis ends, stocks are going to be under pressure while government bonds will be a safe haven.

Those looking for a "bubble in bonds", need look no further than Japan. 10 year bonds at 1.5% are proof of how low yields can go. Those who see a bond bubble in the US, right here right now, are barking up the wrong tree.

Spare me the "US is not Japan" comments.

I know all about the differences between Japan and the US. I have commented on them many times. Inquiring minds should take a look at Q&A on the Psychology of Deflation written January 11,2007 and Deflation American Style written January 18, 2008.

Those how argue "It's Different In Japan" need to weigh the impact of those differences. The pent up deflationary forces in the US are such that Deflation American Style figures to be far worse than Deflation Japanese Style.

All the people who said US consumers would keep spending forever and banks would keep lending forever have now been proven wrong. US consumers are tossing in the towel on spending, and banks have tossed in the towel on lending.

Still more are going to be tossing in the towel as unemployment rises and home prices and the stock market continues to sink.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Businesses Slash Jobs

The New York Times is reporting Spending Stalls and Businesses Slash U.S. Jobs.

As the financial crisis crimps demand for American goods and services, the workers who produce them are losing their jobs by the tens of thousands.

In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who�s Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines.

When October�s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

�My view is that it will be near 8 or 8.5 percent by the end of next year,� said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s.

My target for 2009 is 8% but I can easily be optimistic. I gave that forecast in Jobs Losses Mount As Recession Deepens.

Of course there is the reported headline number (6.1%) and what unemployment really is. If you add up the total unemployed, marginally attached workers, and those working part time for economic reasons, the number is already 11%.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. For a discussion of Table A-12, please see Jobs Contract 9th Consecutive Month.

Let's take a look



click on chart for sharper image

The headline unemployment is in the first circle. A better estimate as to how it really feels to the guy on the street is in the last line.

Unemployed And Happy

Let's compare a picture from the New York Times article above with an image from the great depression.



"Rochelle and Dwight Stokes of Phenix City, Ala., have both lost their jobs recently."

They seem happy about it.

Now let's take a look at a classic depression era image.



That's what a depression would feel like.

I have seen that haunting image many times. Thanks to "Giles" for reminding me about it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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GE Needs Fed Bailout To Finance Operations; Dividend At Risk

GE is struggling to get short term financing at a price it wants to pay. So what does GE do? The answer is twofold:

1) Borrow from the Commercial Paper Funding Facility

2) Pretend this is a good thing.

Consider this ridiculous headline: GE to Sell CP to Fed to Help Unlock Credit Markets.

General Electric Co., the biggest U.S. issuer of commercial paper, plans to use the Federal Reserve�s new short-term funding facility, throwing its weight behind the central bank�s efforts to unlock the credit markets.

�This is a way for us to demonstrate our support for what the Fed is doing, which is providing all-around liquidity,� Wilkerson said.

GE's Disingenuous Pronouncement

Let's translate what GE said into English:
"We desperately need short term cash and cannot get it elsewhere."

GE Sees Shrinking Economy

GE's CEO Immelt Sees Shrinking Economy for 2-3 Quarters.

The U.S. economy will have two or three quarters of �negative growth� once global financial systems stabilize, General Electric Co. Chief Executive Officer Jeffrey Immelt said.

Financial markets are experiencing the greatest disruption since the 1930s, tightening credit for corporate and consumer borrowers. GE, the biggest U.S. issuer of commercial paper, said yesterday it plans to use a new short-term funding facility from the Federal Reserve when the program starts next week, throwing its weight behind Fed efforts to unfreeze the credit markets.

Companies should be planning under a scenario of �what happen if the credit markets are half the size in 2009,� Immelt said. GE still runs the company for its debt to be rated AAA, the highest available, Immelt said. Financial companies will either become bank holding companies or have the AAA rating, he said.

�We still believe if you have low cost of funds, good origination, good risk management, there is a role� for a AAA- rated company, Immelt said. �You�re either one or the other as time goes on.�

What if the credit markets are half the size? What will that do to your financing costs if you cannot get a handout from taxpayers?

GE Will Cut Costs, Jobs

GE is struggling as the following headline shows: GE Will Cut Costs, Jobs, Immelt Says.

General Electric Co. is cutting costs, preparing for a new wave of regulation from Washington and embracing manufacturing over financial services as ways out of the economic crisis, its chief executive said Friday.

"Costs will be lower in 2009 than in 2008," Chairman and Chief Executive Officer Jeffrey Immelt said in an interview. "That will be true across the board." Employment will also be lower, he said, declining to name numbers or percentages.

GE's NBC Universal business group recently announced cuts totaling $500 million, ...

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GE Monthly Chart



click on chart for sharper image

Technically GE is in a corrective pattern A-B-C (down-up-down) off the all time high in 2000. How low share price goes is anyone's guess, but it is already back to the same price it was at in 1997.

So much for dollar cost averaging even into the bluest of blue triple A rated chips. For more on dollar cost averaging please see S&P 500 Crash Count Compared To Nikkei Index.

GE Capital Financing Woes

I have a source at GE Capital who writes "Sales personnel are not allowed to make any more loans this year, and are being told to try to get their customers to pay off their loans. All prepayment penalties are waved for closing loans and GE Capital is about to launch a new incentive scheme for the salespeople that makes it worth their while to get their customers to agree to participate."

A second source indicates the above statement is more than likely division by division as opposed to an across the board measure. Divisions hit by that ruling might be things like auto and boat leasing, dealer financing, etc.

In regards to the latter, think about the deteriorating asset quality of both the loans and the assets GE would pick should GE's customers default.

GE's Debt

YahooFinance shows that GE has $548 billion in debt.



click on chart for sharper image

The above chart shows that GE has $204 billion in short term financing needs with $3.8 billion in cash and a rapidly rising debt to equity ratio of 4.866.

Other than the government (taxpayer), where is GE going to get $200 billion to keep rolling over that short term financing? At what interest rate? I have more questions:

How many billions of dollars did GE waste buying shares back over the years at $40 or greater? $35 or greater? $25 or greater? $20 or greater? Think of where GE might be if it used the money to pay down debts rather than buy shares at absurd prices.

I see that GE is paying a dividend of 6.6% while borrowing money from taxpayers to fund operations. How long can that dividend last?

Here is one final thought. The government stepping in to provide cheap financing to GE is not doing anyone any good. Paulson wants banks to lend, and by doing so is artificially driving down short term rates. Why should GE get short term financing from banks, when it can get a better deal (at taxpayer expense) from the government?

Why should banks make loans when the government is taking away opportunities in one of the few AAA rated opportunities around? This assumes of course you think GE is really deserves to be AAA. Then again, that AAA rating is something that needs to be determined by the market forces not government sponsored rating agencies or the Federal government itself.

The entire gamut of Bernanke's lending schemes are failing, and will continue to fail. GE helps explain why.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Paulson Weighs Buying Insurers

Bloomberg is reporting Paulson Said to Weigh Stakes in 20 Firms, Including Insurers.

The U.S. Treasury is considering taking stakes in about 20 financial companies and may include insurers as it begins a second round of capital injections to thaw a freeze-up of the financial system.

A final decision hasn't been made on the roster of firms to be included, a person briefed by the Treasury said on condition of anonymity.

Treasury Secretary Henry Paulson shifted the focus of the government's $700 billion financial rescue program to purchases of equity stakes after markets deteriorated faster than policy makers anticipated. The strategy offers a faster way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers yesterday.

"The strategy offers a faster way to deploy taxpayer funds."

Translation: Just what we need, a faster way to waste taxpayer funds. As soon as we burn that up, we can come back for another $750 billion.

Banks, brokerages, Insurance companies already in the bailout pot.

So what's next? Homebuilders? Hedge Funds? Pension Plans? The stock market itself? After all, we all know the stock market only goes up, let's print $10 trillion and buy stocks.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Australian Funds Block Withdrawals

The Age BusinessDay is reporting Four fund providers suspend withdrawals as redemptions soar

AUSTRALIA'S mortgage fund industry has dramatically succumbed to a flight of money to government-guaranteed bank deposits, with four of the biggest five fund providers suspending withdrawals.

AXA Asia Pacific, Australian Unity and Perpetual Investment Management last night suspended redemptions on a string of mortgage-backed investment funds, in an unprecedented series of announcements. They followed a similar move on the Challenger Howard Mortgage Fund � the country's biggest � earlier this week.

The latest three come after what has been described as a dramatic spike in redemptions from mortgage funds after the Government moved to guarantee bank deposits almost two weeks ago. But the rate of redemptions rapidly gained pace in the past 48 hours, after the Challenger move and as the scope and nature of the guarantee was hotly debated by the Government and Opposition in Canberra.

Four of the five biggest mortgage fund providers in the country � all save ING � have now suspended withdrawals from their funds, worth a collective $10 billion, according to research house Lonsec.

Unintended Consequences Of Bank Deposit Guarantees

Here is an interesting effect of selective government guarantees as noted in Funds block withdrawals.

THE mortgage fund lockout widened yesterday as two of the country's biggest fund managers blocked investor access to $4 billion. Perpetual and AXA said last night they would defer redemptions on $2 billion tied up in blue-ribbon mortgage funds.

Their decisions follow a rash of unintended consequences from the Federal Government announcement on October 12 that it would guarantee bank deposits.

Foreign investment banks that had been denied the guarantee lost deposits as money managers shifted funds to banks with government backing.

Backflip On Guarantee

In response to the withdrawals, Australia backflipped on an unlimited guarantee. Here is a view of a guarantee backflip.

THE deposit guarantees have put competition back 20 years in two weeks. Even with last night's Government backflip on an unlimited guarantee, whose details were not out at time of publication, the damage is done.

AMP, the biggest insurance and funds group in the country, has just been hit, suspending withdrawals on its Capital Enhanced Yield Fund for 12 months. The Mariner group suspended redemptions too yesterday.

For the funds industry the guarantees are a disaster, especially for those well-managed institutions that matched their funding profiles conservatively and held plenty of cash. They are paying a penalty for good management.

Over the past two decades, in the wake of deregulation, a plethora of non-bank lenders sprouted up in competition to the banks, from Aussie Home Loans to GE Money. They are now either out of the game on pricing, or gone.

GE, the biggest non-bank financier in the country, pulled the pin on house and car loans yesterday. There will be dislocation in the car industry where showroom floors are packed with new cars on finance from GE.

The deluge of money out of institutions into the banks is a disaster. Funds � both mortgage and high-yield funds � are freezing redemptions and locking down investor savings by the day. It's a fluid situation but the figures now surpass 32 funds with $20 billion, and counting, in investor savings affecting about 100,000 people.

Australia's Key Stock Index Falls to 4-Year Low

Bloomberg is reporting Australia's Key Stock Index Falls to 4-Year Low; Boral Tumbles

Australian stocks fell, dragging the index to the lowest in almost four years, as signs of weaker earnings fueled concern that the economy is slowing.

Boral Ltd., the nation's biggest seller of building materials, sank 8.9 percent, the most in seven years, after saying earnings may fall. Sims Group Ltd., the world's largest recycler of scrap metal, fell 5.9 percent after saying it may cut profit margins and sales volumes. Westpac Banking Corp. lost 3.8 percent, pacing declines among financial shares, as money- market rates rose.

The S&P/ASX 200 Index fell 105 points, or 2.6 percent, to 3,869.40 at the close in Sydney, its lowest since Nov. 23, 2004. The gauge has lost 2.6 percent this week, taking its drop this month to 16 percent.

Macquarie Office Trust, Australia's largest publicly traded office property trust, plunged 34 percent to 36.5 Australian cents, the biggest loser in the S&P/ASX 200 Index. ING Industrial Fund, a real estate investment trust, sank 10 percent to 63 Australian cents, rounding a three-day, 43 percent slump.

The unintended consequences of all these global bailout plans continue to mount. What a disaster.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Russian Default Risk Soars: LTCM Repeat Play

The Telegraph is reporting Russian default risk tops Iceland as crisis deepens.

Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund.

Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe. Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight, recalling the wild episodes of Europe's ERM crisis in 1992. The CDS spreads on Ukraine's debt have topped 2,800, signalling total revulsion by investors.

Rating agency Standard & Poor's issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (�124bn) could start to erode the credit-worthiness of the state.

Russian companies must roll over $47bn of foreign loans over the next two months, and a further $150bn or so next year, a task that has become close to impossible as investors flee Eastern Europe.

"The surge in Russian CDS spreads is paralysing the whole system. The government can offer very little help to the banks at this point because its own sovereign debt is in question," he said.

"This crisis is starting to look like the Black Wednesady in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said.

Genius Fails Again

It is fitting that Russia is back in the news because it was the demise of Long Term Capital Management that kicked off a string of moral hazard interventions by the Fed that continues to this day.

Please see Genius Fails Again for a recap of LTCM and the 1997 Russian Bond market collapse that then threatened the financial system. The derivatives mess today is thousands of times greater.

Let's explore a chart of the Russian Stock Market to see if we can find a pattern similar to the bond collapse in 1997.

LETRX Russia Fund



click on chart for sharper image

There was probably no better place to be than Russia right after the collapse of the Russian bond market in 1997. Any bets this time? Let's flashback to September 5th looking for clues that might help.

Russian Fund Outflows No Surprise

Reuters is reporting Russian stock fund outflows at 9 weeks

Russian equity funds had a ninth consecutive week of cash outflows amid concerns over property rights, Boston-based fund tracker EPFR Global said on Friday.

Recent harsh criticism from Prime Minister Vladimir Putin against coal company Mechel, harassment of non-Russian managers at oil company TNK-BP, the flexing of Russia's military might in Georgia and its drawn-out removal of forces has left foreign investors shaken.

"No real surprise. If there is any surprise it is that people are not taking their money out faster given the pretty clear evidence of any hopes that (President Dmitry) Medvedev will moderate Putin or do much to protect property rights," said Cameron Brandt, global markets analyst at EPFR.

It seems like sentence should read "No real surprise. If there is any surprise it is that people are not taking their money out faster given there is no evidence of any hopes that (President Dmitry) Medvedev will moderate Putin or do much to protect property rights".

An exact repeat play percentage wise would take LETRX down to 6.72. I do not think it goes that far, but then again I am known for being widely optimistic.

Developing Nation Bond Yields Soar on Russia Rating-Cut Outlook

Bloomberg is reporting Developing Nation Bond Yields Soar on Russia Rating-Cut Outlook.

Developing nations' borrowing costs neared a six-year high after Standard & Poor's threatened to cut Russia's debt ratings as the global credit crisis deepened.

The extra yield investors demand to own emerging-market government bonds instead of U.S. Treasuries rose 27 basis points, or 0.27 percentage point, to 8.29 percentage points, the biggest since November 2002, according to JPMorgan Chase & Co.'s EMBI+ index. The annual cost to protect Russia's bonds from default soared as S&P lowered Russia's ratings outlook to negative on concern the cost of the government's bank rescue will climb.

Russia has committed as much as 15 percent of its gross domestic product to propping up banks, including a $50 billion credit line to development bank Vnesheconombank. Russia's international reserves, the world's third largest, declined by $14.9 billion last week after the central bank sold currency to support the ruble as investors pulled money out of the country.

"There is now no safe haven globally other than a deeply indebted U.S. government," said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London.

No Safe Havens

"There is now no safe haven globally other than a deeply indebted U.S. government." That unfortunately appears to be the very sad state of affairs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mesa Arizona Facing Huge Budget Crisis

AZCentral is reporting Mesa facing huge budget crisis.

Mesa is bracing for what could be the worst budget crisis in city history.

City Manager Chris Brady said Thursday that in about a month the City Council will be forced to decide what essential services Mesa can afford in an economy whose daily headlines speak of home foreclosures, drastic slowdowns in construction and a calamitous drop in sales-tax collections.

Decisions will boil down to one question, Brady said. "What are the critical services we want to continue with?"

The Fire Department is already an early casualty.

Fire Chief Harry Beck sent an e-mail to his staff Wednesday outlining $1 million in budget cuts beginning Monday.

Mesa's budget problems are not unique to Valley cities. Phoenix and Scottsdale, among others, are struggling with unprecedented cutbacks. Phoenix's cuts could reach $250 million by June 30.

For most of its modern history Mesa has lived on sales taxes, an increasingly iffy source of money as other Southeast Valley cities have become retail centers in their own right. Now, a desperate national economic picture, which has seen home values and people's retirement savings plummet, has devastated the retail segment.

Figures released Thursday show Mesa's sales-tax collections for June, July and August dropped 13.6 percent from what was collected during those months in 2007.

Shopping Center Economic Model Is History

If you did not know it before, you do now: The Shopping Center Economic Model Is History.

Newcomers to the site as well as anyone needing a refresher course might also appreciate Does The Shopping Center Economic Model Work?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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