KeNo's Housing and Economic Portal: Wednesday July 6 Housing and Economic stories

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U.S. Postal Service to Stop Paying Into Pension Fund - (www.bloomberg.com) The U.S. Postal Service, facing insolvency without approval to delay a $5.5 billion payment for worker health benefits, will suspend contributions to an employee retirement account to save $800 million this year. The Postal Service will stop paying employer contributions to the defined-benefit Federal Employees Retirement System, which covers about 85 percent of career postal workers, it said today in an e-mailed statement. The $115 million payment, made every other week, will stop on June 24, the statement said. Suspending payments to the retirement account will help “conserve cash and preserve liquidity,” the statement said. The agency estimates it has overpaid by $6.9 billion and has asked Congress to pass legislation to return that money. Congress must “make bold, quick and substantive reforms,” said Art Sackler, executive director of the Washington-based Coalition for a 21st Century Postal Service, which represents corporate mail customers. “The USPS is hanging by a thread.”

Why Minnesota Is Headed For A Government Shutdown - (www.businessinsider.com) Time is running out for Minnesota lawmakers to avoid a July 1 government shutdown. The Republican-controlled state Legislature and Democratic Gov. Mark Dayton are at an impasse over how to close a $5 billion two-year budget deficit. Dayton, who was elected on a campaign of taxing the rich, wants to offset spending cuts by increasing taxes on the wealthiest 2% of Minnesotans. Republicans want to balance the budget entirely with cuts. For now, neither side is budging. If they can't reach an agreement by the end of the fiscal year, two-thirds of the state's employees will be sent home without a job at the end of the month. About 40,000 state employees received layoff notices last Friday, according to the Minneapolis Star-Tribune. Under Dayton's latest shutdown plan, 46 state agencies will close entirely, while 29 agencies will remain open with minimal staffing

Congressional Budget Office warns of debt explosion - (www.washingtonpost.com) The national debt will exceed the size of the entire U.S. economy by 2021 — and balloon to nearly 200 percent of GDP within 25 years — without dramatic cuts to federal health and retirement programs or steep tax increases, congressional budget analysts said Wednesday. The dire outlook from the nonpartisan Congressional Budget Office comes as the White House and congressional leaders are locked in negotiations aimed at cutting spending and stabilizing future borrowing. The CBO report highlights the enormity of that task and the immense difficulty of paying off the debt, given an aging population and soaring health-care costs. Over the long term, the CBO said, a projected explosion in government spending outside interest on the debt is “attributable entirely” to the ballooning cost of “Social Security, Medicare, Medicaid, and (to a lesser extent) insurance subsidies” intended to help finance coverage for the uninsured under President Obama’s new health-care law.

Weighing the Fallout in Derivatives if Greece Defaults - (www.nytimes.com) It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.? No one seems to be sure, in large part because the world of derivatives is so murky. But the possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate. In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders. The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default.

Papandreou Budget Hole Threatens to Swallow Europe, Defies Debt-Crisis Fix - (www.bloomberg.com) George Papandreou was staring into a 20 billion-euro ($29 billion) hole. It’s common for freshly minted leaders to discover that there’s not enough money to pay for their campaign promises. So when Papandreou’s new Greek government woke up to a looming budget disaster within days of taking office in October 2009, the alarm bells were slow to ring in European capitals. Don’t “overrate” the problem, said German Chancellor Angela Merkel, later to play a pivotal role in the debt saga that continues to rock the 17-nation euro area. “There are deficits in other parts of the world as well.” That initial reaction foreshadowed European leaders’ failure to tame a crisis that is entering its 21st month and has world leaders growing anxious over the prospect of a new financial tsunami as they shake off the effects of the last one. On June 7, President Barack Obama told Merkel it was her job to stop an “uncontrolled spiral of default.” China’s central bank warned on June 14 of a “major risk” incubating in Europe.