FedUpUSA

Archive for June 6th, 2010

U.S.’s $13 Trillion Debt Poised to Overtake GDP: Chart of Day

June 4 (Bloomberg) — President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”

Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”

Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.

“The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?”

To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

Chart Courtesy of ZeroHedge

Recovery Means Lower Expectations

PROSPER, Texas – Advised by a Walgreens superior that a promotion was “very highly likely” if he transferred to the drugstore chain’s Dallas division, Chris Cummings uprooted his family and bought a spacious house in this hopefully named suburb.

“The sky’s the limit,” he was told.

But instead of a promotion, the company for which Cummings had been an assistant manager three and a half years cut his hours so drastically that he had to take a second job. In March, he was laid off, and his part-time second job became full-time.

“An optimist sees the glass as half full. A pessimist sees the glass as half empty. I see the glass as twice as big as it needs to be,” Paul Lechner says. He was out of work for two years before getting a job at Target.

And so that is how a 40-year-old father of four with a master’s in business administration from the University of Notre Dame finds himself bagging groceries at Sprouts, a local health-food store.

“I never thought I’d be here with the education that I have and that I’d worked hard on,” Cummings said before a recent shift in the checkout lane at the Sprouts in nearby Frisco. “Probably where the frustration comes most is when I get the alumni magazine and I see what my classmates are doing. And that’s not a good feeling.”

The federal government says the “Great Recession” is over — has been for months now — and that we’re well into the recovery. But don’t tell that to Cummings, who has seen his income cut by three-quarters and can’t afford health insurance for his family.

Or Af Shirinzadeh, who went from a $100-an-hour chiropractic job to part-time work as a docent in an Atlanta museum that features plasticized human cadavers.

Or welder Mark Sepeda, who had to move his family of six from a spacious home in Nevada’s lush Carson Valley to a two-bedroom apartment when the Las Vegas building boom came to a screeching halt.

Or Paul Lechner, who, with a mixture of gratitude and dejection, accepted a job stocking shelves at a Super Target after two years and hundreds of applications failed to land him a position in advertising, the field for which he trained.

Yes, the stock markets have largely rebounded. Housing and car sales are back up. And though job creation isn’t robust — last week, the Labor Department reported private employers added just 41,000 jobs, down from 218,000 in April and the fewest since January — the economy is growing again.

But, if “recovery” means getting back to where you were before things fell apart, many aren’t even close. To people like Lechner, 43, who came to North Carolina’s Research Triangle full of hope for a bountiful future, it’s meant resigning himself to lower expectations:

That any mental stimulation he gets will come from crossword puzzles, conversations with his wife or the weekly pub trivia nights with the guys — not from his work. That if he ever manages to get another job in advertising, it’ll probably be too late for any awards or recognition. And that his 4-year-old son, Jerry, will likely be his only child.

“An optimist sees the glass as half full. A pessimist sees the glass as half empty. I see the glass as twice as big as it needs to be,” Lechner says.

The American landscape is littered with huge and half-empty glasses, and men and women like Paul Lechner.

90 percent pay cut
Af Shirinzadeh holds out a preserved human lung and smiles as two young women make grossed-out faces.

“Step on up,” he says. “There is no teeth on this one. It doesn’t bite.”

The joke draws the women in, and within seconds they are holding actual human organs while Shirinzadeh talks to them about the science behind what they are feeling. He beams.

As a docent in the “touch booth” at “Bodies … The Exhibition,” Shirinzadeh gets to lay his hands on human bodies, albeit dead ones.

“I’m so grateful for this job,” says the 38-year-old suburban Atlanta man, who was laid off last year from his job as a chiropractor and spent six months on unemployment looking for any kind of work. “I’m able to educate others, and share my knowledge, and keep myself sharp.”

The job pays a tenth of what Shirinzadeh made as a chiropractor, and it’s only three or four days a week. The layoff has forced him to rethink his plans for the future — and re-evaluate his past choices.

Shirinzadeh’s wife, an elementary school teacher, has gone back to graduate school to get a credential that will give her a bump in pay. Shirinzadeh would do the same, if he wasn’t already saddled with considerable college debt — and if the couple could afford regular day care for their 2-year-old son.

His father had wanted him to become a medical doctor. The son wonders if he made the right choice in becoming a chiropractor.

“I didn’t think it was going to be like this,” he says. “I thought, ‘I’ll be a doctor of chiropractic. I’ll work hard, save up a bunch of money, maybe retire early.’ Now it’s like, work until you die.”

An earthbound view
When the economy was up, so was Mark Sepeda.

The 50-year-old welder walked the iron atop some of Sin City’s newest skyscrapers. The Encore Las Vegas Casino and the Mandarin Oriental hotel at the massive $8.5 billion CityCenter are among the more recent pleasure palaces he’s helped to soar.

These days, Sepeda’s view on the world is strictly earthbound.

Since being laid off in January 2009, Sepeda has been reduced to soliciting freelance auto mechanic work through online classifieds and word-of-mouth referrals. His family’s tiny apartment is just east of the Las Vegas Strip, within sight of the skyscrapers he helped build.

They used to live in a house in Gardnerville, a Carson Valley town not far from the 24/7 casinos of Reno and the serene beauty of Lake Tahoe. “We had a huge backyard over there, too,” he says. “You could park your boat and your RV back there and still be able to drive your vehicle around it.”

Now, the kids sleep two to a room (two of Sepeda’s daughters share a bed with the family pit bull, Milo). At night, Sepeda and his wife, Sue, bunk on the living-room floor.

When Sepeda was working iron, it was a matter of pride that his wife could stay at home and focus on the kids. She recently took a job at a car wash that pays $15 an hour.

“Now is when the wife and the kids step up to help me, because I can’t do it all by myself no more, like I used to,” he says. “They used to want for nothing.”

When Sepeda isn’t working on cars, he spends his days training for other hands-on jobs and trying to find steady work anywhere he can.

He’s been close to getting hired as an apartment maintenance person at a couple of complexes, but needs certification in pool maintenance. And after some night school, he’s seeking to become a card-carrying smog technician.

“I’ve learned this town is about cards,” he says. Another thing he’s learned: In this economy, you make your own luck.

‘A lot of promise’
Joe Lechner was a plumber, Betty Lechner was a secretary, and they drilled a simple truth into their elder son’s head: A college degree was the key to success. It had taken him 16 years and three different schools, but Paul Lechner finally got it — a bachelor’s degree in advertising, with a concentration in copywriting and minor in marketing.

Lechner had a half-dozen good years in his chosen field before he was laid off in 2006. His wife, Julie, had just given birth to their son, and it seemed a perfect time to move closer to the grandparents, to start anew.

After much scouting, they decided on Holly Springs, N.C. — a Research Triangle bedroom community halfway between his parents’ home in upstate New York and their winter retreat in Florida.

“Looking back on it, … the horizons were WIDE open,” he says. “There was a lot of promise and prospect. We bought a very nice house in a really nice neighborhood in a great section of town.”

They landed just as the boom was going bust. Agencies were downsizing, not hiring; the freelance work that had kept him afloat slowed to a trickle, then dried up completely.

Finally, after two years of fruitless searching, Lechner took a job stocking shelves at a Super Target, because it offered affordable health insurance for Julie and Jerry.

“It was intended to be something that was a way to stop the bleeding,” he says.

If his father didn’t hold the mortgage on their house, Lechner says, “we’d have been living in a cardboard box six months ago.” The last movie he and his wife saw at the theater was “The Dark Knight” — two summers ago.

The trivia nights at Woody’s Sports Tavern in nearby Cary are Lechner’s only “extravagance.” He doesn’t just enjoy them — he needs them.

When the waitresses come around for beer orders, they know not to bother asking Lechner. He always has iced tea — not because he’s a teetotaler, but because the refills are free.

Two hours and several baskets of Buffalo wings later, Lechner and team “Vernon T. Money” have scored their second straight victory. The $50 pot goes onto the table to help cover the tab.

“It’s $14, $15 that I don’t need to spend, but the effects, psychologically, are immeasurable,” Lechner says. “It just FEELS good … an opportunity for me to feel like I’m actually contributing to something.”

Letter-go let go
As head of human resources for Nationwide Auction Systems, it was Wivory Bell’s job to travel around California in late 2008 and tell people they were being let go. By last April, there were so few humans left, her own services were no longer required.

The 43-year-old single mother threw herself into the job search. But she didn’t just sit around the house waiting for the offers to come rolling in.

Bell volunteered with the career renewal ministry at Huntington Beach’s St. Simon and St. Jude Catholic Church.

She led a 2½-hour Advanced Career Strategies class at the church every Thursday, and taught Step 3 — managing your online profile — of the “Eight Steps to Career Renewal.”

Bell began coaching two unemployed people each week, going over “power stories” and “elevator pitches,” refining resumes and practicing job interview questions.

She also managed to boost her own resume, using her “free” time to earn her Global Professional Human Resources certification, her Corporate Wellness certification and her coaching certification. She even started classes to get her master’s degree in business administration.

After hundreds of applications and 20 face-to-face interviews, the hard work paid off. On May 6, a year and a week after her layoff, the Orange County woman started a full-time human resources job at an assisted living facility just down the road from her Aliso Viejo home.

It’s just a contract job, so there are no benefits. But there’s a chance it could become permanent, and Bell is over the moon about having a paycheck again.

Bell — whose e-mails end with the phrase, “Make It A Results-Driven Day” — says her 14-year-old daughter, Rian, is her inspiration and biggest cheerleader. Each morning before she leaves for school, Rian tells her mother, “Make me proud today.”

“If nothing else, I’m showing her that when you do reach times of adversity, it’s how you handle yourself and how you’re going to come out of it,” she says. “Not wallowing, not self-pity. That’s not how you’re going to get to the next level.”

A fresh start
William Marshall didn’t have nearly as far to fall as some. But that doesn’t make the pain any less keen.

After five years in the warehouse of a Milwaukee heating and cooling equipment wholesaler, the 43-year-old father of three had worked his way up to $14.90 an hour. In January 2009, he and his wife, Janet, emerged from a painful bankruptcy and were hoping for a fresh start.

Five months later, the company let him go, leaving the couple strapped to pay thousands of dollars in uncovered medical costs from their daughter’s hip surgery.

It took Marshall seven months to land another job, with a company that locates utility lines. It paid just $12 an hour.

That job lasted about six weeks. Luckily, Janet Marshall knows how to handle money.

The 45-year-old bank payment specialist has had to get creative with meals — using less expensive foods like macaroni and cheese, hot dogs, hamburger and chicken. She’s become expert at finding coupons and watching for sales.

The couple have had to put off replacing their oven, box spring and television, and they only buy the necessities. They spend little, if anything, on entertainment or clothes.

“It’s sad when your kids say, ‘Mom, Do you have $5?’ And you can’t even give them $5 because every dollar is … allocated to go somewhere that is more important than them having $5 at the mall,” Janet Marshall says.

In March, William Marshall finally landed a new job, in shipping and receiving. He’s making $13.25 an hour.

The ups and downs, false starts and backward slides have taken their toll. Like many Americans, Marshall was taught that the man was the breadwinner, and he confesses to struggling with depression.

“It is hard,” he says. “It’s in the back of your mind all the time, like ‘Man we could be doing better. We SHOULD be doing better.’”

But his Pentecostal faith tells him that things happen for a reason. Although his salary isn’t quite where it was, he’s with a good company, one where he seems to fit.

“I think I really have to experience the things I’ve had to experience to get me where I’m going,” he says. “I can’t really explain it, but I’m a whole lot happier than I’ve been in a long time.”

As if on cue, the couple’s dilapidated van died recently. They bought a replacement, meaning their hopes of socking away some money will have to wait a bit longer.

“Just once I want to catch a break,” Marshall says.

‘Your last day’
Chris Cummings knew a “reduction in force” was coming at Walgreens. But with a marketing degree from a prestigious university, he thought he was insulated.

Then he heard the words, “This is going to be your last day.” For a moment, he thought he might faint.

His wife, Kristie, stays home to care for the kids — Kelsie, 13; Meghan, 10; Spencer, 7; Tyler, 5. Chris Cummings is the sole breadwinner.

The folks at Sprouts gave Cummings more hours, but he still didn’t qualify for benefits. Even if he was eligible, he’d be hard pressed to afford the coverage.

Something as simple as the purchase of four new tires so his wife’s car could pass inspection can throw the family’s finances into turmoil. Cummings doesn’t want to think where he’d be without occasional financial help from his family and church (a member who owns a ranch made an anonymous gift of beef).

“I feel like we’re RIGHT on the edge financially of being able to make it and generally avoid having incurred too much debt to get over this bridge time,” says Cummings, clad in his bright-red “Team Sprouts” T-shirt.

Bagging groceries is not exactly mindless work, but it is hardly intellectually taxing. Cummings confesses that his mind sometimes wanders to the job applications he’s sent out, the positions he’s competing for.

“What if they don’t come up?” he asks himself. “What if they don’t happen?”

Cummings has heard other out-of-work professionals scoff at such menial jobs as being “beneath” them. But his parents taught him that all work is meaningful.

Besides, he has a wife and four children to feed. He can’t afford such airs.

“It DOES feel good to be doing what I can and feeling like this isn’t permanent, that this is gonna end, and there will be something better,” he says.

Cummings doesn’t regret his decision to move to Prosper. The school district is great, and he loves the community.

“The only missing piece is the employment that matches my education and experience,” he says. “And I’m confident it will happen soon, and we will, indeed, prosper in Prosper.”