How the economic storm battered St. Thomas, Ont.'s factories

In the depths of the recession, John LaCroix stopped at a traffic light in his green Ford Windstar and found himself struck by a wave of anxiety.

He had been working only part-time since being laid off at the Sterling Truck plant in St. Thomas in 2007 and fears about running out of money had been waking him in the middle of the night. Now, they were beginning to dominate his daytime thoughts as well.

“You’re stopped at a red light. There’s nobody around; you’re looking at your gas gauge and thinking of your money. ‘I’m wasting gas that I need. This is serious. This is food for my table. I’m not sitting here when there’s no other cars around. I’m going through this red light.’” And he did.

Mr. LaCroix’s journey through the recession reflects the devastation the manufacturing crisis has wrought on St. Thomas, the one-time railway capital of Canada that now has a strong claim to another, more dubious title: the Canadian city hit hardest by the recession and factory closings.

The shutdown of the Sterling heavy-truck plant, the looming closing of a nearby Ford Motor Co. factory and numerous other shutdowns have rippled well beyond Mr. LaCroix and thousands of others whose jobs have vanished, hitting social service agencies, the United Way, local school boards and taxpayers in the city and the surrounding area.

Will America really Default on it's Debt?

President Obama has locked top Republicans and Democrats in a room to try and hammer out a deal to cut the U.S. deficit and raise the U.S. Treasury’s borrowing authority by Aug. 2. If the government is unable to borrow more money it may not be able to pay interest on its debt — and a string of bills from doctor’s bills to army wages.

Q: How real is the Aug. 2 deadline?

A: U.S. Treasury Secretary Timothy Geithner set the current deadline for the United States to either raise its US$14.3-million debt ceiling or default on its obligations in May, after making and extending a handful of others earlier in the year.

Unlike previous deadlines, “This August/early August deadline is fairly firm,” says Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

Yet, with Treasury officials reportedly meeting in secret this week to come up with possible contingency plans, Mr. Porcelli said an extension of sorts may be in the cards.
“I think you cannot rule other the possibility that the folks in D.C. invent another accounting gimmick to buy more time,” he said, pointing to a past move to tap into government funds to stave off default.

“It was definitely a novel approach at the time. I don’t think such novelty can be ruled out right now.”

Q: What if they miss the deadline by a few days?

A: If talks drag on but are still close and lawmakers look set to raise the debt ceiling within a few days, a temporary reprieve may be possible. Markets would likely drop but ratings agencies like Moody’s Investors Service might hold off on a downgrade for a few days.

But the grace period would not be long. Mr. Geithner started warning Congress about this in January, and a failure to find a solution would raise serious red flags with China and other major creditors.

Q: What are the major sticking points in the negotiations?

A: In earlier sessions, negotiators identified roughly US$2-trillion in spending cuts that could form the basis of a deal. Republicans walked out of those talks after Democrats called for an additional US$400-billion in budget savings by ending a range of tax breaks that benefit wealthy people and certain businesses, like the oil and gas industry. On Wednesday, the two Republicans who were involved in those talks indicated that they could accept some “revenue raisers” in a deal. And indicating that even more ambitious plans may be afoot, Democrats said Mr. Obama will push negotiators to double their target to US$4-trillion in budget savings over 10 years.

Q: What will the government cut if the deadline passes?

A: Analysts say the U.S. Treasury will have no choice but to pay interest on the debt first and then make decisions about what to pay next.

Averaged out through August, 44% of bills and obligations could not be paid, making it impossible to avoid deep cuts to popular programs, according to the Bipartisan Policy Centre, a Washington think-tank.

“Remember where the bulk of spending rests. It would almost necessarily have to come from reductions in either Social Security, Medicare, national defence — basically in the so-called income-security categories,” Mr. Porcelli said, noting that bills would start to go unpaid “in short order,” after the default.

“There’s obviously a lot of sensitivity to those items on both sides of the aisle,” he said, predicting many lost votes if politicians allow it to get to that point.

Q: Would it really be all that bad?

Ahead of new debt talks, Boehner nixes grand plan

President Barack Obama and congressional leaders were regrouping after House Republicans abandoned efforts for a deficit reduction package of $4 trillion over 10 years. The potential deal had unnerved lawmakers in both parties.

House Speaker John Boehner announced late Saturday that he was now looking for a deal about half that size and said that chances for a bigger agreement succumbed to the White House's insistence on substantial new tax revenue.

Administration officials said Obama would press for a bigger bargain one last time at a White House negotiating session Sunday evening.

Consumers borrowed more for 8th month in May

Americans took on more debt in May and used their credit cards more for only the second time in nearly three years. Consumers stepped up their borrowing just as the economy began to slump and hiring slowed.

The Federal Reserve said Friday that consumer borrowing rose $5.1 billion in May, the eighth straight monthly increase. It followed a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.

The overall increase pushed consumer borrowing to a seasonally adjusted annual level of $2.43 trillion in May. That was just 1.7 percent higher than the nearly four-year low of $2.39 trillion hit in September.

Borrowing is a sign of confidence in the economy. Consumers tend to take on more debt when they feel wealthier. That boosts consumer spending. Ultimately, it gives businesses more faith to expand and hire. But an increase in credit card debt can also be a sign of people falling on harder times.

The economy added just 18,000 jobs in June, the fewest in nine months, the Labor Department said Friday. It was the second straight month of feeble job growth. The unemployment rate rose to 9.2 percent, the highest rate of the year.

Economists have said that temporary factors, in part, have forced some employers to scale back hiring plans. High gas prices have cut into consumer spending, which fuels 70 percent of economic activity. And supply-chain disruptions stemming from the Japan crisis have slowed U.S. manufacturing production.

The increase in credit card borrowing marked only the second monthly gain since August 2008. Households began borrowing less and saving more when unemployment spiked during the Great Recession. Many have resisted pulling out their credit cards in the two years since the downturn ended. Even with the May increase in credit card debt, this category is down 4.4 percent over the past year and 18.5 percent from its peak in August 2008.

High unemployment, slow wage growth, and a weakening housing market have forced people to be more frugal. Analysts believe the rise in student loans reflects the slumping economy: more people who have lost jobs have returned to school to get training for new careers.

CHINA ETF a stiff?

The biggest Chinese exchange-traded fund in the U.S. is losing money faster than any other country- focused ETF, even as the lowest valuations since 2008 convince brokerages in the Asian nation that it’s time to buy.

Investors pulled a net $961.2 million from the iShares FTSE China 25 Index Fund (FXI) this year, the most among 140 single-country ETFs that trade on U.S. markets, according to data compiled by New York-based research firm XTF Inc. The outflows coincided with a decline in the Shanghai Composite Index’s price-earnings ratio using estimates for the next year to 11.6, a valuation last seen during the financial crisis in November 2008.

Valuations in the Shanghai Composite slumped after the country’s central bank raised lender reserve requirements 12 times since the start of 2010 and increased benchmark interest ratesfor the fourth time. The People’s Bank of China is tightening monetary policy to curb inflation, which climbed to the highest level since July 2008 in May.

Little known line in Constitution to prevent Default?

The White House could resort to an little-known line in the USconstitution to prevent a ruinous default if Democrats and Republicans do not agree to raise the debt ceiling by August 2, experts say.

The 143-year-old clause, written to address still-potent divisions after the bloody Civil War, has been dredged up by legal scholars as well as the US Treasury secretary to suggest how a debt debacle might be avoided.

But resorting to it could spark a constitutional crisis over just who -- the Congress or the White House -- controls the power of the federal purse, analysts say.

The US government reached its debt limit of $14.29 trillion in May and since then the Treasury has used special measures to allow the government to keep paying its bills.

But unless the limit is raised by August 2, the Treasury says, growing spending and debt service commitments will force a default, which would have disastrous ripple effects throughout the global financial system.

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Of Course - there is always 1907!

Think about this;


The lineup at the cash machine is long - not just long - it's around the block.


No one can get a cent.


The Banks are closed.


The Debit card?


Doesn't work.


There have been many Countries that have been kicking 'the can' down the road, for far too long.


The chickens are have come home to roost.


Watch the next few weeks.


Look at the record gold shorts.


Insiders have stopped buying.


Housing is DOA.


Stay tuned.