KeNo's Housing and Economic Portal: Tuesday January 11 Housing and Economic stories

Monday, January 10, 2011

Tuesday January 11 Housing and Economic stories

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FOREVER STAMPS TELL US MUCH - (www.financialsense.com) The United States Postal Service announced this week that all future first class postage stamps sold will be the so-called "forever stamps" that have no face value but are guaranteed to cover the cost of mailing a first class letter, regardless of how high that cost may rise in the future. Currently these stamps are sold for 44 cents, but will increase in price if and when the Post Office hikes rates. Apart from sounding the death knell of the one cent stamp, the news is interesting on two fronts: it provides insight into remarkably irresponsible government accounting, and it provides investors with the most attractive Federally-guaranteed inflation protected asset available on the market today. Over the past fifty years, the USPS has raised the rates on first class postage 20 times. During that time the stamp prices have gone up more than 1,100%. Given the increasing frequency of rate hikes (three in the last four years) the Post Office claims it made the move to forever stamps to save money on printing costs and to increase customer convenience. The public seems to appreciate the product and has snapped up a staggering 28 billion forever stamps since they became available in 2007. But the real reason behind the permanent switch is that it allows the Post Office to hide its insolvency behind phony accounting numbers, setting itself up for a massive taxpayer financed bailout in the not too distant future. Much the way Greece used phony accounting to qualify for euro zone inclusion, the USPS is using creative accounting to avoid making significant cuts in current wages and benefits. By offering forever stamps, the Post Office moves forward future revenues to pay current expenses. But every forever stamp sold today represents a stamp not sold in the future.

America's capital investment deficit - (www.washingtonpost.com) "Lose weight and get fit" is a good New Year's resolution. Not necessarily for you, dear readers, as half of you are extremely handsome and the other half, stunningly beautiful (and all of you have great taste in newspapers). But for the government, it's spot on. Of course, the government is constantly talking about losing a few inches around the deficit. What worries me, though, is that the "get fit" part will get forgotten. The government can no more cut its way to a strong economy than a person can starve himself to health. Andy Stern, the former president of the SEIU and a member of the president's fiscal commission, nails the point in his dissent to the commission's final report. America, he says, has two deficits: The budget deficit we're all used to hearing about. And the investment deficit that often goes unmentioned. The two deficits are more alike than people realize.

Pittsburgh City Council, Mayor Clash on Pension ‘Armageddon’ - (www.bloomberg.com) Pittsburgh’s City Council ordered Mayor Luke Ravenstahl to attend a meeting today to hash out a plan to avoid a state takeover of the underfunded municipal pension, which may more than double its cost to taxpayers. A vote to compel Ravenstahl to come before the council’s finance committee followed about six hours of debate on shoring up the pension system using parking fees. The retirement plan has about $325 million in assets to cover $1 billion in promised benefits, according to a consultant’s report. The city has until Dec. 31 to show the state how it will bolster the plan. “It’s merely an accounting gimmick to get past Dec. 31,” said Scott Kunka, Ravenstahl’s finance director, on the proposal to use parking fees over the next 30 years to support the pension system. “It’s just a bad concept,” he said.

Quinn Weighs $15 Billion Illinois Borrowing ‘Option’ - (www.bloomberg.com) Illinois Governor Pat Quinn is considering borrowing $15 billion to pay overdue bills and balance the biggest budget deficit in the state’s history. Illinois faces a budget shortfall of at least $13 billion because of declining tax revenue. The state Senate in November didn’t have the votes to approve the borrowing of $3.7 billion to cover pension-fund contributions for the fiscal year that ends June 30. Senate President John Cullerton and House Speaker Michael Madigan declined through spokesmen to say if the bond sale would draw enough support to pass. The Senate Republican leader, Christine Radogno, criticized the proposal as lacking specifics about how the money would be paid back. Other ideas under consideration include a 2 percentage- point increase in the state income tax that the Senate approved in 2009. The current rate is 3 percent. The House didn’t take the measure up for a vote. Quinn’s new borrowing proposal, which the Chicago Tribune reported today, drew criticism from one municipal-bond investor. Matt Dalton, chief executive officer of Belle Haven Investments Inc., in White Plains, New York, questioned the wisdom of borrowing. “He’s trying to sign up for another credit card,” said Dalton. “That’s going to put a lot of pressure on Illinois.”