KeNo's Housing and Economic Portal: Friday May 20 Housing and Economic stories

Thursday, May 19, 2011

Friday May 20 Housing and Economic stories

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TOP STORIES:

Employee Costs Could Bankrupt San Francisco In Five Years: Mayor – (www.businessinsider.com) San Francisco's budget deficit is on track to triple over the next five years if the city doesn't do something to get its spending in check, according to a new financial plan from Mayor Ed Lee. Mandated by a 2009 ballot initiative, the report lays out a five-year financial strategy to balance the city's budget. San Francisco faces a budget shortfall $306 million next year. That deficit is projected to grow to $829 million by 2016, as the city's operating costs steadily outpace revenue. According to the study, the single "largest driver" of the projected shortfall is the ballooning cost of employee wages, benefits and pensions, which are expected to grow by $648 million over the next five years. The mayor's proposal calls for $25 million in wage and benefit cuts next year, followed by $100 million in fiscal year 2013-14 and $200 million the following year.

'Flash crash' worries go global - (money.cnn.com) On the one-year anniversary of the infamous 'flash crash' that sent the Dow industrials plunging nearly 1,000 points in less than 20 minutes, questions remain about how prepared markets around the world are to stop a similar event. "The SEC has done a good job to create an infrastructure, but in other markets creating this type of infrastructure is not as easy," said Larry Tabb, CEO of the Tabb Group, which tracks the exchange industry. In the aftermath of the May 6 flash crash, the Securities and Exchange Commission established new rules -- including expanding the use of "circuit breakers" to include exchange traded funds and stocks. Circuit breakers halt trading when a stock or an index falls by a certain percentage in a short period of time. As U.S. regulations were being shored up, volatility and volume on U.S. exchanges was drying up. And that was forcing high frequency traders to seek out other markets, largely in emerging economies. But that shift could be leaving those exchanges vulnerable to a 'flash crash' scenario.

Markets losing faith in Portugal - (www.nytimes.com) One day after agreeing to a $115.5 billion rescue package, Portugal was forced to offer higher interest rates on its debt, spurring fears that, as in Greece and Ireland after their aid deals, financing costs in the country will continue to escalate. While all three countries will benefit in the short term from the loans coming from the European Union and the International Monetary Fund, their ability to continue to raise affordable short-term funds from international investors is considered crucial. Interest costs have soared for Greece and Ireland as many investors expect the tough austerity measures included in their rescue packages will actually deepen the countries’ economic slumps and make it even harder for them to balance their budgets and repay their debts.

Did Germany Just Publicly Shoot Greece In The Back? – (www.businessinsider.com) The Der Spiegel report suggesting Greece was considering leaving the euro emanates from a German government source, and that may explain everything. For weeks, German officials have been hinting that they want a Greek restructuring to happen. German economic advisor Lars Feld recently said that the restructuring should happen "sooner than later." He's previously also said "restructuring is the only road to take." Greece is now rumored to be requesting an extension on the interest payments of its IMF-EU bailout loan. For German Chancellor Angela Merkel, a continuation of easy bailout programs for Greece could be damaging to her domestic position, and exacerbate the growth of far right parties in Europe.

UK economy suffers biggest drop in growth since Lehman collapse - (www.telegraph.co.uk) Britain has suffered its sharpest fall in growth since the collapse of Lehman Brothers amid mounting evidence that the recovery is stalling in the face of tough fiscal austerity. The Bank of England left rates on hold at their historic low of 0.5pc for the 27th consecutive month on Thursday, as key data on the UK's dominant services sector came in weaker than expected. The Markit/CIPS headline services PMI index fell to 54.3 in April from 57.1 in March. While still indicating growth, it was below forecasts of 55.7. Together with weak PMIs on manufacturing and construction earlier this week, the services sector survey indicated "the largest loss of growth momentum seen since just after the collapse of Lehmans" in September 2008, said Chris Williamson, Markit's chief economist. He added that the PMI data signalled that GDP was expanding at a quarterly rate of just 0.4pc. The weak PMI data has forced economists to push back their expectations of a rate rise to the end of the year. Many are now expecting them to be left unchanged until early next year, and the market is factoring in just one rate rise in 2011 - in December. Just two months ago, the markets believed there was a nine-in-10 chance that rates would have been lifted on Thursday.