60000 Scottish public sector jobs could be axed

Moody’s Puts Iceland’s Baa3 Rating On Outlook Negative, Next Stop – Junk, As Island Nation Continues Giving Banks the Finger – Just because the unpronounceable volcano did not do quite enough damage, and both Hekla and Katla are taking their sweet time, the Iceland Supreme Court recently ruled on the illegality of foreign FX-linked loans, and "Icesave" is still DOA, here is Moody’s with a stern warning for the country to change its anti-Keynesian ways promptly or else. "Today’s rating action was triggered by the recent Supreme Court ruling on the illegality of foreign-exchange-linked loans and government’s continuing difficulties in achieving a resolution to its "Icesave" dispute with the UK and Dutch governments. Specifically, the Supreme Court ruling has the potential to cause substantial bank losses on foreign currency-denominated loans to domestic borrowers and may therefore require additional government support to the banking system. Moreover, a failure to resolve the "Icesave" dispute could lead the Nordic countries and the IMF to withhold future disbursements to the Icelandic government."
60000 Scottish public sector jobs could be axed – Ministers should be prepared to axe one in 10 public sector jobs — around 60,000 — to help Scotland weather the tightest budget squeeze in living memory. That is the key recommendation of the Independent Budget Review (IBR) group, set up by the Scottish Government to look at possible ways of dealing with an anticipated £42 billion budget cut over the next 16 years as the UK Government tackles the deficit. The IBR’s report makes grim reading — proposing cuts and changes to some of the policies which have been hallmarks of devolution.

Greek stand-off intensifies as police fire tear gas at striking truck drivers – With fuel shortages stranding thousands of tourists and disrupting supplies of food and medicines nationwide, prime minister George Papandreou resorted to an emergency civil mobilisation order – legislation more typically employed at times of war or natural disaster – to end the walk-out.But hopes of a return to normality were dashed yesterday when riot police fired tear gas at thousands of truckers gathered outside the transport ministry.“The order is coming through to [drivers], but I have no idea how they are going to react to it,”The ruling socialists called for the mobilisation – the fourth time since the collapse of military rule in 1974 that such an order has been issued – as it became clear Greece was facing a public health crisis because of the strike. On islands, where fuel supplies have run out, tourists could be seen abandoning rented cars by the side of the road while yachts remained docked in harbours or drifted out to sea.


Japanese Style Deflation – CNBC’s Larry Kudlow had a segment last night about if Japanese style deflation is coming to America. His guest, David P. Goldman of First Things magazine, said that the U.S. today “very closely resembles Japan of the 1990s”. He said that the only thing that can prevent Japanese style deflation from occurring in the U.S. is “American entrepreneurship”.NIA believes deflation is the last thing in the world Americans need to be worried about. Japanese style deflation would be the best possible outcome of our upcoming fiscal crisis, but NIA believes this outcome is nearly impossible. In our opinion, Zimbabwe style hyperinflation is the inevitable outcome. Even if the U.S. had enough “American entrepreneurship” to create 700 new companies as successful as Apple Inc., NIA believes we are still headed towards hyperinflation.


Fed Member’s Deflation Warning Hints At Policy Shift – A subtle but significant shift appears to be occurring within the Federal Reserve over the course of monetary policy amid increasing signs that the economic recovery is weakening. On Thursday, James Bullard, the president of the Federal Reserve Bank of St. Louis, warned that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”  The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, comes days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so.

U.S. Michigan Consumer Sentiment Index Fell to 67.8 – Confidence among U.S. consumers fell in July to the lowest level since November, posing a threat to the biggest part of the economy.  The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 this month from 76 in June. The preliminary measure was 66.5. Employment growth has been slow to take hold and lower home prices are depressing wealth. The lack of confidence may further restrain consumer spending, which accounts for 70 percent of the economy, and limit the pace of growth.

Recession in U.S. Was Even Worse Than Estimated, Revisions Show – The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to revised figures. The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the Commerce Department said today in Washington. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.  “We do tend to get bigger revisions at turning points in the economy,” Steven Landefeld, director of the Commerce Department’s Bureau of Economic Analysis, said in a press conference this week. On the more positive side, “in the past, we’ve tended to undershoot the recovery” as well, he said.

Moody’s Says Spain May Lose Aaa Rating; US Needs `Clear Plan’ (Bloomberg) — Spain will probably lose its Aaa credit rating after the country was put under review for possible downgrade in June, and the U.S. needs a “clear plan” to tackle its deficit, Moody’s Investors Service said. “Spain is very highly rated and I can’t say where that rating will end up, but it’s likely to go down a bit,” Steven A. Hess, senior credit officer at Moody’s, said in an interview in Sydney yesterday. In the U.S., slower growth may hinder government efforts to address the budget shortfall, he said.The Spanish government is trying to cut the third-largest budget deficit in the euro region while returning to growth after an almost two-year recession. Spain’s classification may be lowered as much as two grades, Moody’s analysts said June 30, citing “deteriorating” economic prospects and the challenges the government faces to achieve its fiscal targets

Fed Should Resume Treasury Purchases if Deflation Risk Grows, Bullard Says – Federal Reserve Bank of St. Louis President James Bullard said the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero. “The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released yesterday about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.” Bullard’s stance increases the odds the Fed will make such a move and reject other options should the economy weaken further, former Fed Governor Lyle Gramley said. Other alternatives to aid growth include using communication to plot the path of interest rates or cutting payments to banks on reserve deposits, Chairman Ben S. Bernanke said last week.

US economic recovery slow, further stimulus needed: IMF (Xinhua) – The U.S. economic recovery has been slow and the outlook remains uncertain with rising downside risks, which warrants further policy stimulus to keep recovery on track, the International Monetary Fund (IMF) said Friday."Private demand has been sluggish, while the unemployment rate has receded only modestly from near post-Depression highs," the IMF said in its annual assessment of the U.S. economy and policy response. "Looking ahead, risks are elevated and tilted to the downside, with particular risks from a double dip in the housing market and spillovers if external financial conditions worsen," the IMF said after its Executive Board concluded consultations with U.S. authorities.

From Fires to Fish, Heat Wave Batters Russia – Here is how extreme it has become: Oymyakon in Eastern Siberia is considered one of the coldest places on Earth, with winter temperatures dropping to as low as minus 90 degrees. On Thursday, the thermometer also read 90 degrees. Plus 90. In the evening.  Much of Russia has been reeling. Forest fires have erupted. Drought has ruined millions of acres of wheat. More than 2,000 people have died from drowning in rivers, reservoirs and elsewhere in July and June, often after seeking relief from the heat while intoxicated. In Moscow alone, the number of such deaths has tripled in comparison with last year, officials said.  All week long, temperatures have been soaring to records, and on Thursday, they reached a new high for Moscow, 100 degrees. July has been the hottest month since the city began taking such measurements under the czars, 130 years ago, officials said.

 Fed’s Fisher sees ‘suboptimal’ growth pace ahead – Richard Fisher, the president of the Dallas Federal Reserve Bank, said Thursday he was worried the economy "will be sailing forward at a suboptimal speed." In a speech in San Antonio, Fisher said recent data point to "a slightly weaker national outlook, with growth from the first quarter onward likely to fall below 3% for a prolonged period." Fisher blamed Washington’s "capricious" manner for drafting health-care legislation and other laws, which he said had forced businesses to the sidelines. "No amount of further monetary policy accommodation can offset the retarding effect of heightened uncertainty over the fiscal and regulatory direction of the country," Fisher said.

The Government Debt Is Becoming A Pure Ponzi Scheme – In an interview conducted with Business Week, Nassim Taleb discusses his view of the biggest black swan in the market currently, and isn’t shy to call government debt a "Pure Ponzi scheme." – When asked where he the biggest potential source of systemic fragility is, he responds: "The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It’s the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it. The problem is getting runaway. It’s becoming a pure Ponzi scheme. It’s very nonlinear: You need more and more debt just to stay where you are. And what broke Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers."

Home Prices Heading for a Second Dip – Recent gains in home values are temporary and markets are poised for a 5 percent dip during the balance of 2010.Even worse, prices will continue to bounce around for as long as three years to come.  That’s the latest scenario from Fiserv, Inc., a technology provider to the financial services industry that bases its forecast from an analysis of home price trends in more than 375 U.S. markets from the Fiserv Case-Shiller Indexes. In the first quarter of 2010, U.S. single-family home prices rose an average of 2 percent over the year-ago quarter, the first year-over-year national gain since 2006. However, prices have fallen 28.7 percent since 2007. “We expect to see prices bounce up and down around their lows for the next two to three years, especially in markets that experienced the largest home prices bubbles. This will result in alternating bouts of optimism and pessimism regarding the housing market recovery, similar to what we have seen for the economy as a whole. This will make it difficult to know exactly when the housing market has reached its bottom.,”

States go deeper into debt — The states are broke, and like many consumers, they’re borrowing big time to get out of their fiscal binds. The amount of debt that states are carrying spiked 10.3% last year to $460 billion, according to Moody’s Investors Service. The debt is paid for through taxes and fees, making residents ultimately responsible. The median personal share of this burden jumped to $936, from $865 in 2008. (To see how much the tab is in your state, click here.)And it’s likely that states will turn to the bond markets even more this year as federal stimulus money dwindles, experts said. After all, officials face an additional $12 billion shortfall for the current fiscal year and a $72 billion gap for fiscal 2012, which starts next July 1.
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