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(CNNMoney.com) -- It's dawning on people that getting a handle on burgeoning U.S. debt will be a long and hard process.So if lawmakers can't agree on a credible plan, some have suggested that the country could just "inflate its way" out of its fiscal ditch.Facebook
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Comment on this storyThe idea: Pursue policies that boost prices and wages and erode the value of the currency. The United States would owe the same amount of actual dollars to its creditors -- but the debt becomes easier to pay off because the dollar becomes less valuable.That's hardly a good plan, say a bevy of debt experts and economists."Many countries have tried this and they've all failed," said Mark Zandi, chief economist at Moody's Economy.com.It's true that inflation could reduce a small portion of U.S. debt. The International Monetary Fund (IMF) estimates that in advanced economies less than a quarter of the anticipated growth in the debt-to-GDP ratio would be reduced by inflation.But the mother lode of the country's looming debt burden would remain and the negative effects of inflation could create a whole new set of problems.For starters, a lot of government spending is tied to inflation. So when inflation rises, so do government obligations, said Donald Marron, a former acting director of the Congressional Budget Office (CBO), in testimony before the Senate Budget Committee."[W]e have an enormous number of spending programs, Social Security being the most obvious, that are indexed. If inflation goes up, there's a one-for-one increase in our spending. And that's also true in many of the payment rates in Medicare and other programs," he said. Inflation would also make future U.S. debt more expensive, because inflation tends to push up interest rates. And the Treasury will have to refinance $5 trillion worth of short-term debt between now and 2015."[The debt's] value could go down for a couple of years because of surprise inflation. But then ... the market's going to charge you a premium interest rate and say 'you fooled us once but this time we're going to charge you a much higher rate on your three-year bonds,'" Marron said.The Treasury is increasing the average term of its debt issuance so it can lock in rates for a longer time and reduce the risk of a sudden spike in borrowing costs. But moving that average higher won't happen overnight. And, in any case, short-term debt will always be part of the mix.Another potential concern: Treasury inflation-protected securities (TIPS), which have maturities of 5, 10 and 20 years. They make up less than 10% of U.S. debt outstanding currently, but the Government Accountability Office has recommended Treasury offer more TIPS as part of its strategy to lengthen the average maturity on U.S. debt.The higher inflation goes, of course, the more the Treasury will owe on its TIPS.Just last week, the CBO noted that interest paid on U.S. debt had risen 39% during the first five months of this fiscal year relative to the same period a year ago. "That increase is largely a result of adjustments for inflation to indexed securities, which were negative early last year," according to the agency's monthly budget review.What's more, the knock-on effects of inflation are not pretty. A recent report from the IMF outlined some of them: reduced economic growth, increased social and political stress and added strain on the poor -- whose incomes aren't likely to keep pace with the increase in food prices and other basics. That, in turn, could increase pressure on the government to provide aid -- aid which would need to keep pace with inflation.More viable alternativesSo where does that leave lawmakers? Facing tough choices.Deficit hawks and market experts have been calling on lawmakers to come up with a strategy to stabilize the growth in U.S. debt, which would be implemented only after the economy recovers more fully.0:00
      /3:24PIMCO CEO's inflation forecastThe idea is to signal to the markets that the country is serious about getting its longer term debt under control so that the burden of paying it back doesn't consume an ever-increasing share of the federal budget.The recommended exit strategies are pretty basic, if unpopular: tax increases and spending cuts.Economic growth will play a key role as well -- since a strong economy produces more tax revenue. But the country cannot grow its way out of its problems. To do that, the economy would have to expand at Herculean rates annually from here on out. And even the most optimistic economist doesn't see that on the horizon.


    
        
         
      
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America's hidden debt bombs  How $1 trillion hides in plain sight  Curbing debt: Shoulda. Coulda. Now gotta.





First Published: March 11, 2010: 9:39 AM ET

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(CNNMoney.com) -- As severe winter storms crippled East Coast cities, the U.S. economy shed thousands of jobs in February, according to a government report released Friday. But the unemployment rate remained unchanged. The Labor Department said the economy lost 36,000 jobs in the month, fewer than the 68,000 jobs economists were expecting, according to a survey conducted by Briefing.com.Facebook
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The results were still worse than the previous month, as just 26,000 jobs were lost in January, according to a revised estimate.But there was no significant change in the number of unemployed workers, and the unemployment rate held steady at 9.7%. Economists surveyed by Briefing.com were expecting an increase to 9.8%.The government said the winter storms that blanketed the East Coast with several feet of snow last month possibly skewed the results. The Labor Department's jobs survey was conducted in the middle of February, which coincided with blizzards that temporarily shuttered some businesses and kept many workers home without pay. Those employees would not have been counted on the government's payroll survey if they did not get paid during that pay period.  "The jobs numbers themselves show a pretty steady improvement across most categories," said Bob Brusca, economist at FAO Economics. "Through the blizzard of jobs data, it's a lot easier to connect the dots to a positive story than to a negative story."Brusca noted that even in sectors that are not hiring, the pace of job loss has slowed to close to the lowest level since the recession began in December 2007. Snowed in"The snow storms were particularly severe, hitting large-population areas the hardest right at the time of the survey," said George Corona, chief operating officer of temporary staffing firm Kelly Services. "You would expect that manufacturing and construction were negatively impacted because of the weather."Retail, construction and factory workers were the most likely to be impacted by inclement weather, and all three sectors took a hit in February. Retailers trimmed 400 jobs after adding 41,000 positions in January. Manufacturing businesses added just 1,000 jobs, down from 20,000 new jobs the month before.Construction continued to be one of the worst-hit sectors, cutting 64,000 jobs in February. Unemployment in the construction industry rose to a rate of 27.1%, up from 24.7% in the previous month and by far the highest rate of any sector.The snow also likely impacted the number of workers who were seeking full-time employment but were working only part-time hours. That figure rose by nearly 400,000, pushing the so-called underemployment rate up to 16.8% from 16.5% in January.That resulted in shorter hours for workers: The hourly work week fell by an average of 6 minutes to 33.8 hours in February. With a modest 3-cent gain in the average hourly salary, the average weekly paycheck rose by $1.01 to $759.15.Obama administration economist Christina Romer said the snow storms likely had a "substantial" impact on February's jobs figures. In turn, she expected last month's jobs report "to be counteracted next month, as workers who temporarily disappeared from payrolls because of the snow are once again counted."A silver liningDespite the snow, several industries showed solid gains in employment, including health care and the service industries. Private business services created 51,000 jobs in February, the most of any sector. That's encouraging, since economists say hiring in that sector is a good measuring stick for the health of the overall labor market.Also encouraging was the addition of 47,500 temporary workers, whose hiring often signals that employers are starting to gear up again. There have been nearly 100,000 temporary jobs created in 2010.0:00
      /1:34What's in the overdue jobs bill?In an attempt to correct the still slumping labor market, the House passed a $15 billion jobs bill on Thursday, and the Senate is expected to vote on it next week. The bill would exempt employers from Social Security payroll taxes on new hires who were unemployed; fund highway and transit programs through 2010; extend a tax break for business that spend money on capital investments, such as equipment purchases; and expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects.


    
        
         
      
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Job creation bill heads back to Senate   Good job news: Wages are rising. Really.   Job cuts slow





First Published: March 5, 2010: 8:41 AM ET

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(CNNMoney.com) -- The head of a key banking panel is expected Monday to release a draft bill of  sweeping regulatory changes aimed at warding off future collapses in the financial system.While much of the attention has focused on battles over the creation of a new consumer regulator to ensure consumers get a fair shake with mortgages and credit cards, the final draft is expected to address other areas, including some lawmakers generally agree about.Facebook
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Comment on this storySenate Banking chief Christopher Dodd, D-Conn., said Thursday that the "single most important thing we do in this bill" will be creating a new mechanism to prevent firms from becoming so big that their failure would threaten the entire financial system, spurring another universally hated $700 billion Troubled Asset Relief Program.Also expected in the bill: New requirements for banks and financial firms to strengthen their capital cushions and new rules pushing some complex financial products to be traded on clearinghouses, instead of in the shadows as is currently done.Because there's general agreement on many of the major ways to ward off future crises, some experts are optimistic that a reform measure can be approved this year. The House passed a version of regulatory reform in December."There's still a broad alignment of interests, the public deeply wants something done and the public hates bankers who are seen as the principal opposition," said Doug Elliott of the Brookings Institution, a liberal think tank. "I'm not convinced that you can find 41 senators who will be willing to filibuster and be portrayed as protecting the bankers."However, the midterm elections could complicate getting a final agreement, as most of Congress spends the summer preparing to face voters."As time moves on, you limit the ability to get something done. The clock is ticking," Dodd said Thursday.Although the details of the bill won't be released until Monday, both Dodd and his most recent negotiating partner, Sen. Bob Corker, R-Tenn., have dropped hints of what to expect.Consumer protection: Expect to see some sort of consumer financial protection regulator, likely housed inside an existing regulator, perhaps the Federal Reserve, Treasury or possibly even the Federal Deposit Insurance Corp. That would differ from the House proposal, calling for a stand-alone agency, which Republicans oppose.Lawmakers were still arguing about the details this week, but Dodd and the White House have insisted the regulator should have strong powers to make and enforce rules and be able to function on an independent revenue stream.Too big to fail: Since late last year, Corker and Sen. Mark Warner, D-Va., have been hashing out a way to force big financial firms teetering on the brink of collapse to go through special bankruptcy proceedings. That would help wind them down more quickly than they can in the existing system. The bill may include a tax on financial firms to create a resolution fund. The fund would be used to pick up part of the tab to wind down banks and financial firms that need help beyond the bankruptcy system. There's also the possibility for additional taxes on large firms after a failed company has tapped the fund.Banking supervision: The regulatory role of the Federal Reserve is poised to get scaled back to include the largest banks, Corker said. The Federal Deposit Insurance Corp. may get new powers in supervising smaller state-chartered banks, Congressional aides and lobbyists say. And Dodd may suggest merging two bank regulating agencies, as the House proposes in its bill, to get a stronger set of eyes on savings and loans and mortgage lenders. Although Dodd last November suggested a super banking regulator to supervise all the banks under one roof, that idea has been scrapped, said Corker, who called such rearranging "one of the silliest efforts I've seen." 0:00
      /5:49Frank: Reform is comingEarly warning system: The Senate, like the House, wants to create some sort of panel of regulators who could sound an alarm before companies are in position to trigger a financial crisis. In this way, the bill would attempt to prevent failures such as those of Lehman Brothers that can deepen financial meltdowns across the globe.In the Senate, lawmakers have leaned toward giving Treasury a key role in such oversight, while the House had the Federal Reserve take the lead.Derivatives: With an eye toward preventing future collapse like that of American Insurance Group (AIG, Fortune 500), the Senate will attempt to shine a brighter light on some of the different kinds of complex financial products. It would pass some of these derivatives on to clearinghouses, which would help pinpoint the value of such trades. However, there's still a lot of disagreement among lawmakers about which derivatives would continue unregulated, such as those traded by big agricultural and airline companies to mitigate risk.


    
        
         
      
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Financial reform bill coming from Democrats  Senate panel mulls consumer protection deal

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(CNNMoney.com) -- As severe winter storms crippled East Coast cities, the U.S. economy shed thousands of jobs in February, according to a government report released Friday. But the unemployment rate remained unchanged. The Labor Department said the economy lost 36,000 jobs in the month, fewer than the 68,000 jobs economists were expecting, according to a survey conducted by Briefing.com.Facebook
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The results were still worse than the previous month, as just 26,000 jobs were lost in January, according to a revised estimate.But there was no significant change in the number of unemployed workers, and the unemployment rate held steady at 9.7%. Economists surveyed by Briefing.com were expecting an increase to 9.8%.The government said the winter storms that blanketed the East Coast with several feet of snow last month possibly skewed the results. The Labor Department's jobs survey was conducted in the middle of February, which coincided with blizzards that temporarily shuttered some businesses and kept many workers home without pay. Those employees would not have been counted on the government's payroll survey if they did not get paid during that pay period.  "The jobs numbers themselves show a pretty steady improvement across most categories," said Bob Brusca, economist at FAO Economics. "Through the blizzard of jobs data, it's a lot easier to connect the dots to a positive story than to a negative story."Brusca noted that even in sectors that are not hiring, the pace of job loss has slowed to close to the lowest level since the recession began in December 2007. Snowed in"The snow storms were particularly severe, hitting large-population areas the hardest right at the time of the survey," said George Corona, chief operating officer of temporary staffing firm Kelly Services. "You would expect that manufacturing and construction were negatively impacted because of the weather."Retail, construction and factory workers were the most likely to be impacted by inclement weather, and all three sectors took a hit in February. Retailers trimmed 400 jobs after adding 41,000 positions in January. Manufacturing businesses added just 1,000 jobs, down from 20,000 new jobs the month before.Construction continued to be one of the worst-hit sectors, cutting 64,000 jobs in February. Unemployment in the construction industry rose to a rate of 27.1%, up from 24.7% in the previous month and by far the highest rate of any sector.The snow also likely impacted the number of workers who were seeking full-time employment but were working only part-time hours. That figure rose by nearly 400,000, pushing the so-called underemployment rate up to 16.8% from 16.5% in January.That resulted in shorter hours for workers: The hourly work week fell by an average of 6 minutes to 33.8 hours in February. With a modest 3-cent gain in the average hourly salary, the average weekly paycheck rose by $1.01 to $759.15.Obama administration economist Christina Romer said the snow storms likely had a "substantial" impact on February's jobs figures. In turn, she expected last month's jobs report "to be counteracted next month, as workers who temporarily disappeared from payrolls because of the snow are once again counted."A silver liningDespite the snow, several industries showed solid gains in employment, including health care and the service industries. Private business services created 51,000 jobs in February, the most of any sector. That's encouraging, since economists say hiring in that sector is a good measuring stick for the health of the overall labor market.Also encouraging was the addition of 47,500 temporary workers, whose hiring often signals that employers are starting to gear up again. There have been nearly 100,000 temporary jobs created in 2010.0:00
      /1:34What's in the overdue jobs bill?In an attempt to correct the still slumping labor market, the House passed a $15 billion jobs bill on Thursday, and the Senate is expected to vote on it next week. The bill would exempt employers from Social Security payroll taxes on new hires who were unemployed; fund highway and transit programs through 2010; extend a tax break for business that spend money on capital investments, such as equipment purchases; and expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects.


    
        
         
      
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Job creation bill heads back to Senate   Good job news: Wages are rising. Really.   Job cuts slow





First Published: March 5, 2010: 8:41 AM ET

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(CNNMoney.com) -- President Obama has been waging a war with banks over who gets to dole out cheap student loans backed by the federal government.For months, key lawmakers planned to move a proposal to force all government-backed student loans to come solely from the federal government as part of the health care legislation. Democrats want to cut out bank middlemen who now collect a subsidy to make federal student loans, such as Stafford loans, which offer the lowest interest rates because the federal government assumes the default risk.Facebook
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Comment on this storyHowever, last week, the Congressional Budget Office said the Obama plan would save taxpayers $67 billion over 10 years, which was far less than projected months ago. The savings would come from ending bank subsidies and allowing the government to keep income earned on the spread between making and issuing the loans that banks now pocket.Now the future of who gets the exclusive right to dole out federally-backed student loans is less clear, although the White House continues to push to link the student loan issue to a health care vote."For too long, bankers have gotten a free ride," wrote Education Secretary Arne Duncan in a Washington Post op-ed piece, saying the existing student loan system subsidizes banks, so that "working Americans pay while bankers get rich."The impactIf the legislation passes, Democrats want to use the billions in savings to fund more need-based Pell grants for low-income students.Consumer advocates say most students won't notice a difference in getting loans, since financial aid offices would continue to work as the intermediary and many offices already administer direct federal government loans.But banks and some Republican lawmakers predict the legislation will cause delays and disruptions in processing student loans, saying the federal government doesn't have the manpower to take over the high volume of loans now originated by the private sector.0:00
      /1:29How to save on student loansThe banks also predict that thousands of jobs will be lost in the private student banking industry, including 2,500 at Sallie Mae (SLM, Fortune 500), said company spokesman Conwey Casillas.The stakes are high, because federally backed student loans are the single most common way students finance higher education. It's a core product for student loan giant Sallie Mae, which also sells students its own private loans at higher interest rates.The alternative Banks would like to keep a piece of the action, when it comes to creating and delivering loans, for a fee of $55 per loan. The current version of their plan costs about $4 billion more than the Obama plan.Student loan provider offers online savingsThe chief financial officer of Sallie Mae, Jack Remondi, believes the Obama plan would turn the Department of Education into "one of the world's largest banks."The bill to cut banks out of the process entirely has already passed the House, but has languished in the Senate, thanks to intense lobbying. Sallie Mae spent $3.5 million last year, according to the Center for Responsive Politics. And a smaller student loan lender, Nelnet (NNI), spent $580,000 on lobbying.Private banks issued far more federally backed loans, some $67 billion, in the 2009-2010 school year, compared to $30 billion issued in direct student loans by the federal government during that same period, according to the Department of Education.The politicsThe fate of who makes these student loans is poised to be decided in coming weeks.0:00
      /2:22Cards cut on campusThe House bill cutting banks out of federally-backed student loans hasn't moved in the Senate, where bills need 60 votes to avoid a filibuster. So, Democratic lawmakers have been planning to stick student loans and health care together in a procedural move called "reconciliation," which avoids filibusters with a simple 51-vote majority.However, Sallie Mae has some powerful friends in the Senate. Six senators, including Sen. Ben Nelson, D-Neb., and Sen. Blanche Lincoln, D-Ark. -- whose states house student loan originators -- wrote Senate Majority Leader Harry Reid, D-Nev., on Tuesday saying they worried the student loan bill "could put jobs at risk."Congressional watchers had expected President Obama to win this round, but now it's more up in the air. Democrats are considering abandoning the student loan issue if it threatens passage of health care."If House leadership believes that education language could leave the Senate short of the 50 votes it needs to pass a reconciliation bill, the House very well may drop the education portion," said Teddy Downey, a policy analyst for Concept Capital Washington Research Group.The House version of the legislation would have taken effect July 1.One reason for the tamped-down estimates predicting less savings is that hundreds of universities each month have already been saving money by transferring their financial aid offices from the private-sector programs to the federal government's direct loan program.The Department of Education says 46% of schools are ready for direct loans and 39% of schools are "in transition," preparing to make the switch to the federal direct loan program."Our experience has been and continues to be absolutely phenomenal," said Walter O'Neill, assistant vice president for financial aid at Roosevelt University in Chicago, which took three months to make the switch to the government's direct loan program last spring.But that leaves 15% of schools that aren't ready. Some worry that students at these schools won't get loans if the schools, including several community colleges and historically black colleges, don't have the resources to switch their computer systems in time."There could be several institutions that can't make the switch and obviously there's some concern about what happens at those institutions," said Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators.


    
        
         
      
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Student loan provider offers online savings  Colleges cut back on generous financial aid  When Grandma offers tuition help





First Published: March 11, 2010: 4:34 AM ET

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(CNNMoney.com) -- President Obama has been waging a war with banks over who gets to dole out cheap student loans backed by the federal government.For months, key lawmakers planned to move a proposal to force all government-backed student loans to come solely from the federal government as part of the health care legislation. Democrats want to cut out bank middlemen who now collect a subsidy to make federal student loans, such as Stafford loans, which offer the lowest interest rates because the federal government assumes the default risk.Facebook
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Twitter
Buzz Up!
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Comment on this storyHowever, last week, the Congressional Budget Office said the Obama plan would save taxpayers $67 billion over 10 years, which was far less than projected months ago. The savings would come from ending bank subsidies and allowing the government to keep income earned on the spread between making and issuing the loans that banks now pocket.Now the future of who gets the exclusive right to dole out federally-backed student loans is less clear, although the White House continues to push to link the student loan issue to a health care vote."For too long, bankers have gotten a free ride," wrote Education Secretary Arne Duncan in a Washington Post op-ed piece, saying the existing student loan system subsidizes banks, so that "working Americans pay while bankers get rich."The impactIf the legislation passes, Democrats want to use the billions in savings to fund more need-based Pell grants for low-income students.Consumer advocates say most students won't notice a difference in getting loans, since financial aid offices would continue to work as the intermediary and many offices already administer direct federal government loans.But banks and some Republican lawmakers predict the legislation will cause delays and disruptions in processing student loans, saying the federal government doesn't have the manpower to take over the high volume of loans now originated by the private sector.0:00
      /1:29How to save on student loansThe banks also predict that thousands of jobs will be lost in the private student banking industry, including 2,500 at Sallie Mae (SLM, Fortune 500), said company spokesman Conwey Casillas.The stakes are high, because federally backed student loans are the single most common way students finance higher education. It's a core product for student loan giant Sallie Mae, which also sells students its own private loans at higher interest rates.The alternative Banks would like to keep a piece of the action, when it comes to creating and delivering loans, for a fee of $55 per loan. The current version of their plan costs about $4 billion more than the Obama plan.Student loan provider offers online savingsThe chief financial officer of Sallie Mae, Jack Remondi, believes the Obama plan would turn the Department of Education into "one of the world's largest banks."The bill to cut banks out of the process entirely has already passed the House, but has languished in the Senate, thanks to intense lobbying. Sallie Mae spent $3.5 million last year, according to the Center for Responsive Politics. And a smaller student loan lender, Nelnet (NNI), spent $580,000 on lobbying.Private banks issued far more federally backed loans, some $67 billion, in the 2009-2010 school year, compared to $30 billion issued in direct student loans by the federal government during that same period, according to the Department of Education.The politicsThe fate of who makes these student loans is poised to be decided in coming weeks.0:00
      /2:22Cards cut on campusThe House bill cutting banks out of federally-backed student loans hasn't moved in the Senate, where bills need 60 votes to avoid a filibuster. So, Democratic lawmakers have been planning to stick student loans and health care together in a procedural move called "reconciliation," which avoids filibusters with a simple 51-vote majority.However, Sallie Mae has some powerful friends in the Senate. Six senators, including Sen. Ben Nelson, D-Neb., and Sen. Blanche Lincoln, D-Ark. -- whose states house student loan originators -- wrote Senate Majority Leader Harry Reid, D-Nev., on Tuesday saying they worried the student loan bill "could put jobs at risk."Congressional watchers had expected President Obama to win this round, but now it's more up in the air. Democrats are considering abandoning the student loan issue if it threatens passage of health care."If House leadership believes that education language could leave the Senate short of the 50 votes it needs to pass a reconciliation bill, the House very well may drop the education portion," said Teddy Downey, a policy analyst for Concept Capital Washington Research Group.The House version of the legislation would have taken effect July 1.One reason for the tamped-down estimates predicting less savings is that hundreds of universities each month have already been saving money by transferring their financial aid offices from the private-sector programs to the federal government's direct loan program.The Department of Education says 46% of schools are ready for direct loans and 39% of schools are "in transition," preparing to make the switch to the federal direct loan program."Our experience has been and continues to be absolutely phenomenal," said Walter O'Neill, assistant vice president for financial aid at Roosevelt University in Chicago, which took three months to make the switch to the government's direct loan program last spring.But that leaves 15% of schools that aren't ready. Some worry that students at these schools won't get loans if the schools, including several community colleges and historically black colleges, don't have the resources to switch their computer systems in time."There could be several institutions that can't make the switch and obviously there's some concern about what happens at those institutions," said Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators.


    
        
         
      
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Student loan provider offers online savings  Colleges cut back on generous financial aid  When Grandma offers tuition help





First Published: March 11, 2010: 4:34 AM ET

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(CNNMoney.com) -- It's dawning on people that getting a handle on burgeoning U.S. debt will be a long and hard process.So if lawmakers can't agree on a credible plan, some have suggested that the country could just "inflate its way" out of its fiscal ditch.Facebook
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Comment on this storyThe idea: Pursue policies that boost prices and wages and erode the value of the currency. The United States would owe the same amount of actual dollars to its creditors -- but the debt becomes easier to pay off because the dollar becomes less valuable.That's hardly a good plan, say a bevy of debt experts and economists."Many countries have tried this and they've all failed," said Mark Zandi, chief economist at Moody's Economy.com.It's true that inflation could reduce a small portion of U.S. debt. The International Monetary Fund (IMF) estimates that in advanced economies less than a quarter of the anticipated growth in the debt-to-GDP ratio would be reduced by inflation.But the mother lode of the country's looming debt burden would remain and the negative effects of inflation could create a whole new set of problems.For starters, a lot of government spending is tied to inflation. So when inflation rises, so do government obligations, said Donald Marron, a former acting director of the Congressional Budget Office (CBO), in testimony before the Senate Budget Committee."[W]e have an enormous number of spending programs, Social Security being the most obvious, that are indexed. If inflation goes up, there's a one-for-one increase in our spending. And that's also true in many of the payment rates in Medicare and other programs," he said. Inflation would also make future U.S. debt more expensive, because inflation tends to push up interest rates. And the Treasury will have to refinance $5 trillion worth of short-term debt between now and 2015."[The debt's] value could go down for a couple of years because of surprise inflation. But then ... the market's going to charge you a premium interest rate and say 'you fooled us once but this time we're going to charge you a much higher rate on your three-year bonds,'" Marron said.The Treasury is increasing the average term of its debt issuance so it can lock in rates for a longer time and reduce the risk of a sudden spike in borrowing costs. But moving that average higher won't happen overnight. And, in any case, short-term debt will always be part of the mix.Another potential concern: Treasury inflation-protected securities (TIPS), which have maturities of 5, 10 and 20 years. They make up less than 10% of U.S. debt outstanding currently, but the Government Accountability Office has recommended Treasury offer more TIPS as part of its strategy to lengthen the average maturity on U.S. debt.The higher inflation goes, of course, the more the Treasury will owe on its TIPS.Just last week, the CBO noted that interest paid on U.S. debt had risen 39% during the first five months of this fiscal year relative to the same period a year ago. "That increase is largely a result of adjustments for inflation to indexed securities, which were negative early last year," according to the agency's monthly budget review.What's more, the knock-on effects of inflation are not pretty. A recent report from the IMF outlined some of them: reduced economic growth, increased social and political stress and added strain on the poor -- whose incomes aren't likely to keep pace with the increase in food prices and other basics. That, in turn, could increase pressure on the government to provide aid -- aid which would need to keep pace with inflation.More viable alternativesSo where does that leave lawmakers? Facing tough choices.Deficit hawks and market experts have been calling on lawmakers to come up with a strategy to stabilize the growth in U.S. debt, which would be implemented only after the economy recovers more fully.0:00
      /3:24PIMCO CEO's inflation forecastThe idea is to signal to the markets that the country is serious about getting its longer term debt under control so that the burden of paying it back doesn't consume an ever-increasing share of the federal budget.The recommended exit strategies are pretty basic, if unpopular: tax increases and spending cuts.Economic growth will play a key role as well -- since a strong economy produces more tax revenue. But the country cannot grow its way out of its problems. To do that, the economy would have to expand at Herculean rates annually from here on out. And even the most optimistic economist doesn't see that on the horizon.


    
        
         
      
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America's hidden debt bombs  How $1 trillion hides in plain sight  Curbing debt: Shoulda. Coulda. Now gotta.





First Published: March 11, 2010: 9:39 AM ET

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(CNNMoney.com) -- The net worth of American households increased slightly during the final three months of 2009, the Federal Reserve said Thursday. Household net worth, the difference between assets and liabilities, rose to $54.2 trillion in the fourth quarter of 2009, up from $53.5 trillion in the third quarter. Facebook
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Comment on this storyIt was the third consecutive quarterly increase, but the figure remains well below the highs of just two years ago. In the second quarter of 2007, net worth peaked at $65.3 trillion.  For 2009 as a whole, household net rose $2.8 trillion, compared with a decline of $11.2 trillion in all of 2008, according to the Federal Reserve's flow of funds report. The report showed that household debt fell at an annual rate of 1.2%, marking the nearly two years of declines. But the drop came after Americans pared debt at a more aggressive 2.6% rate in the third quarter. The rebound in household net worth came as the value of Americans' investment portfolios continued to increase. Stock holdings jumped nearly 4% to $7.7 trillion. However, real estate values rose less than 1% in the fourth quarter to roughly $1.6 trillion. That comes after an increase of more than 2% in the third quarter. Meanwhile, the report showed that the federal government's debt load increased by 12.6%, after an increase of 20.6% in the prior quarter. Debt levels for state and local governments increased 4.7%.


    
        
         
      
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Why the U.S. can't inflate its way out of debt  Unemployment claims show long-term problem





First Published: March 11, 2010: 12:22 PM ET

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(CNNMoney.com) -- As severe winter storms crippled East Coast cities, the U.S. economy shed thousands of jobs in February, according to a government report released Friday. But the unemployment rate remained unchanged. The Labor Department said the economy lost 36,000 jobs in the month, fewer than the 68,000 jobs economists were expecting, according to a survey conducted by Briefing.com.Facebook
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The results were still worse than the previous month, as just 26,000 jobs were lost in January, according to a revised estimate.But there was no significant change in the number of unemployed workers, and the unemployment rate held steady at 9.7%. Economists surveyed by Briefing.com were expecting an increase to 9.8%.The government said the winter storms that blanketed the East Coast with several feet of snow last month possibly skewed the results. The Labor Department's jobs survey was conducted in the middle of February, which coincided with blizzards that temporarily shuttered some businesses and kept many workers home without pay. Those employees would not have been counted on the government's payroll survey if they did not get paid during that pay period.  "The jobs numbers themselves show a pretty steady improvement across most categories," said Bob Brusca, economist at FAO Economics. "Through the blizzard of jobs data, it's a lot easier to connect the dots to a positive story than to a negative story."Brusca noted that even in sectors that are not hiring, the pace of job loss has slowed to close to the lowest level since the recession began in December 2007. Snowed in"The snow storms were particularly severe, hitting large-population areas the hardest right at the time of the survey," said George Corona, chief operating officer of temporary staffing firm Kelly Services. "You would expect that manufacturing and construction were negatively impacted because of the weather."Retail, construction and factory workers were the most likely to be impacted by inclement weather, and all three sectors took a hit in February. Retailers trimmed 400 jobs after adding 41,000 positions in January. Manufacturing businesses added just 1,000 jobs, down from 20,000 new jobs the month before.Construction continued to be one of the worst-hit sectors, cutting 64,000 jobs in February. Unemployment in the construction industry rose to a rate of 27.1%, up from 24.7% in the previous month and by far the highest rate of any sector.The snow also likely impacted the number of workers who were seeking full-time employment but were working only part-time hours. That figure rose by nearly 400,000, pushing the so-called underemployment rate up to 16.8% from 16.5% in January.That resulted in shorter hours for workers: The hourly work week fell by an average of 6 minutes to 33.8 hours in February. With a modest 3-cent gain in the average hourly salary, the average weekly paycheck rose by $1.01 to $759.15.Obama administration economist Christina Romer said the snow storms likely had a "substantial" impact on February's jobs figures. In turn, she expected last month's jobs report "to be counteracted next month, as workers who temporarily disappeared from payrolls because of the snow are once again counted."A silver liningDespite the snow, several industries showed solid gains in employment, including health care and the service industries. Private business services created 51,000 jobs in February, the most of any sector. That's encouraging, since economists say hiring in that sector is a good measuring stick for the health of the overall labor market.Also encouraging was the addition of 47,500 temporary workers, whose hiring often signals that employers are starting to gear up again. There have been nearly 100,000 temporary jobs created in 2010.0:00
      /1:34What's in the overdue jobs bill?In an attempt to correct the still slumping labor market, the House passed a $15 billion jobs bill on Thursday, and the Senate is expected to vote on it next week. The bill would exempt employers from Social Security payroll taxes on new hires who were unemployed; fund highway and transit programs through 2010; extend a tax break for business that spend money on capital investments, such as equipment purchases; and expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects.


    
        
         
      
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Job creation bill heads back to Senate   Good job news: Wages are rising. Really.   Job cuts slow





First Published: March 5, 2010: 8:41 AM ET

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(CNNMoney.com) -- More than 170,000 troubled homeowners are breathing a lasting sigh of relief now that they've received permanent modifications under the Obama administration's foreclosure prevention program.Some 15.5% of those who entered the program have gotten long-term adjustments through February, up from 11.5% a month earlier, according to a report from Treasury officials issued Friday.Facebook
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Comment on this storyAn additional 91,800 permanent modifications have been approved by servicers and are pending borrower acceptance. And more than 88,600 people have been denied lasting help because they did not meet the program's criteria, while another 1,499 homeowners have had their permanent modification terminated.More than 835,000 people are currently in trial modifications, a review period during which banks check whether borrowers can make the reduced payments and gather the necessary paperwork to verify income and hardship. The administration's foreclosure prevention program reduces eligible borrowers' monthly payments to 31% of pre-tax income. Participants typically have their loans reduced by $519, or 36%.The number of people receiving permanent help has been steadily rising as the administration increases the pressure on mortgage servicers to make decisions on those in the trial phase. 0:00
      /3:10Homeowners walking awayHowever, some experts say that more needs to be done to help troubled borrowers, particularly those without jobs or who owe more than their homes are worth.Even those who make it into a trial modification are not assured of getting permanent assistance. A growing number of people are getting rejection notices as they hit the end of their trial period. "While the pace of conversion to a permanent modification has stepped up since the program started, it is slow compared to the large number of loans that are still in trial modification," according to Celia Chen, who studies the housing market. "A large number of these homes are expected eventually to be put up for sale, adding to the supply glut and causing prices to decline once again.When the modification was first announced in February 2009, the administration said it would help up to 4 million people avoid foreclosure. More recently, however, it has changed that goal, now saying that up to 4 million people could qualify for trial modifications. The shift doesn't sit well with some housing advocates."Our measurement of success cannot be based on how many people gain assistance for only a few months, but it must be based on how many people gain permanent and sustainable modifications," said New York State Banking Superintendent Richard Neiman, who serves on the State Foreclosure Prevention Working Group.Additional effortsThe administration is rolling out new programs to try to keep the housing market on a fairly even keel. Last month, President Obama announced a $1.5 billion initiative to help the unemployed and underwater who owe more than their home's value in five hard-hit states. And officials will soon implement a foreclosure alternative designed for people who don't qualify for modifications. The administration will pay borrowers, servicers and investors incentives to complete short-sales, in which the bank agrees to sell the home for less than the mortgage amount.Friday's figures comes a day after an industry report showed the national foreclosure rate fell 2% in February from a month earlier. Yet, RealtyTrac warned that the true number of distressed borrowers may be hidden by the foreclosure prevention efforts.Many experts are expecting a surge in foreclosures during 2010 as borrowers' attempts to modify their loans fail. 


    
        
         
      
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Can't make your mortgage? Get an emergency loan  Housing help for unemployed, underwater borrowers  One year later: Lasting help for 116,000 homeowners





First Published: March 12, 2010: 2:10 PM ET

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(CNNMoney.com) -- Senate Democrats on banking panel plan to release and start working on a financial overhaul bill next week, without Republican support.Senate Banking Chairman Chris Dodd, D-Conn., said Thursday he planned to release a draft bill on Monday, even though a "few outstanding issues remain," including consumer protection. Facebook
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Comment on this story"The time is shrinking to get this done," Dodd said at a press conference. "I think putting this proposal on the table is not a result of this process breaking down."He said the committee would take up the bill in the week that starts March 22.Dodd has been promising to release a draft bill for several weeks, but delayed it while trying to work with key Republicans on the panel.Regulatory overhaul cannot pass the full Senate without some Republicans on board.But it also can't pass without full support among Democrats, and several senators have made it clear they do not like the way negotiations are going, especially on the issue on the consumer protection, according to Congressional aides and financial service lobbyists.The Dodd announcement signaled that he wants to get the process moving even if it doesn't have full Republican support.Consumer protection"He felt the need to go ahead, regardless of where we were in the negotiations, to put forth a bill on Monday," said Sen. Bob Corker, R-Tenn., who has been negotiating with Dodd. "Obviously, that's very disappointing."Corker said consumer protection was not among the remaining "outstanding issues," that they had negotiated a deal to house a consumer regulator in the Federal Reserve, instead of a stand-alone agency, which the House established in its bill.But Dodd, at his news conference, said "we're not there yet" in discussing consumer protection.Sources tell CNN that several Democrats, including Sen. Jeff Merkley, D-Ore. and Sen. Ted Kaufman, D-Del., do not like how the negotiated deal on consumer protection houses the regulator inside the Fed.On Thursday, Kaufman said on the Senate floor that the head of any consumer agency "must not be subject to the authority of any regulator responsible for the safety and soundness of the financial institutions."And Sen. Charles Schumer, D-N.Y. and Sen. Tim Johnson, D-S.D., both told CNN that lawmakers lack agreement about where to house the consumer protection regulator.Another point of contention: Corker said Dodd has also agreed to allow banks and financial firms to keep their existing regulator when it came to enforcement of new consumer rules. Consumer groups have blasted existing regulators for failing to enforce consumer rules.Other outstanding issues include derivatives, including how big to make loopholes that would allow some to avoid trading the complex financial products through clearinghouses. Another area up for debate is over how much of a piece of a mortgage that the bank originating the loan should keep, in order to share some of the risk, as it starts chopping up the mortgage to sell to other investors.Last December, the House passed a sweeping financial overhaul package. The measure would create a stand-alone consumer agency, impose tougher capital cushions for the largest banks and Wall Street firms, and force them to pay billions into an emergency fund that could be tapped when a troubled company needs to be broken up. 0:00
      /5:49Frank: Reform is comingGetting a Senate version has been more problematic. Early last month, the ranking member of the Senate Banking Committee, Sen. Richard Shelby, R-Ala., officially pulled out of negotiations with committee chairman Dodd over an impasse on the consumer agency. Both left the door open for more talks that have since taken place. Then Corker stepped up to say he'd work with Dodd in crafting a compromise consumer agency.The clock is ticking -- veteran Congressional watchers say political will to tackle such a complex initiative could crumble as the campaign season picks up this summer.-- CNN's Jessica Yellin contributed to this report.


    
        
         
      
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No Senate deal on consumer financial protection  Senate rewrites financial reform





First Published: March 11, 2010: 10:35 AM ET

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(CNNMoney.com) -- The U.S. economy grew at a slightly faster pace than originally thought during the last three months of 2009, according to a government report Friday.The nation's gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of 5.9% in the quarter, the Commerce Department reported. Economists surveyed by Briefing.com had forecast that the revision would show the same 5.7% growth that was originally reported a month ago.Facebook
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Comment on this storyThe report is another sign that the U.S. economy has pulled out of the deepest downturn since the Great Depression. The solid growth, the best improvement for the U.S. economy in more than six years, follows a 2.2% annualized increase in the third quarter. Most economists now agree that the recession probably ended at some point last summer.Still, the strong end of 2009 wasn't enough to make up for the even larger declines in the first half of the year. For the full year, GDP fell 2.4%, the biggest decline in the annual reading since 1946.The recovery is widely perceived as fragile.  Federal Reserve Chairman Ben Bernanke testified to Congress this week that the central bank will need to keep interest rates low in order to support the economy.The recovery is even less apparent to the typical American. Job losses have continued in all but one month and most economists believe unemployment will stay close to 10% for much of the year. Credit remains tight for small businesses and consumers and the recovery in housing prices is uneven at best. The most recent survey of 5,000 American consumers by the Conference Board found the greatest level of worry about the current state of the economy in 27 years."The fourth quarter GDP revision tastes great, but is less filling," said Robert Dye, senior economist of PNC Financial Services Group. "We need the meat and potatoes of private-sector job creation in order to sustain this recovery."This GDP reading showed consumers still very much on the sidelines, as spending by individuals increased at a far more modest 1.7% annual rate in the quarter. Instead, it was businesses and the federal government that led the way on growth. More than half the growth in the quarter was due to the fact that businesses were no longer slashing inventories the way they did in the first three quarters of the year. Spending on equipment and software, often seen as a proxy for business investment, grew at an 18.2% rate in the period.Nondefense spending by the federal government grew at an 8.3% rate. But budget-strapped state and local governments cut spending at a 2% rate, while defense spending fell 3.5%, leading to a decline in overall government spending.A 22% rise in exports also was a major contributor to growth.The lift from the rebuilding of inventories and the government stimulus package passed last year is expected to wane later this year, meaning growth will likely slow to a more modest rate. Economists surveyed by the National Association of Business Economics forecast 3.1% growth this year and 3.2% in 2011.


    
        
         
      
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Bernanke concerned about weak jobs  Consumers believe economy is worst in 27 years.  Economists: Recovery firmly on track





First Published: February 26, 2010: 8:36 AM ET

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(CNNMoney.com) -- Is the Federal Reserve forever blowing bubbles?With interest rates hovering at historic lows, some economists and investors fear the Fed's easy-money policy could create another asset bubble. But others don't see a need to hit the panic button just yet. Facebook
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Comment on this story    While bond yields are off their recent low, they are still lower than normal, raising the risk of a bubble in bond prices, which move in the opposite direction than yields.Critics want the central bank to start hiking rates and withdrawing some of the trillions of dollars pumped into the system over the last few years to help spur U.S. economic activity.Neither move is likely to happen at Tuesday's meeting of central bank policymakers. But Fed watchers will be looking closely at the Fed statement for clues about its so-called exit strategy and any signs of bubble worries among the Federal Open Market Committee members who control monetary policy.Feeding bubbles with low ratesThe Fed gets blamed for creating bubbles because when rates are low, money is cheap for investors. That can encourage excessive risk taking and drive up asset prices, as in the dot.com boom of the late 1990s or housing prices in the middle of the last decade."Easy money is a key ingredient of crazy bubbles," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "This is why observers have said the Fed is just blowing up bubbles."Critics have argued the central bank has a duty to "pop" bubbles before they inflate too large and cause economic havoc. Fed officials have responded that it's difficult to foresee an asset bubble forming, and that monetary policy is not an effective tool for bubble bursting.But that was before an extended period of easy money was followed by the massive bubble in home prices, which sparked a crisis in the global financial system and the worst economic downturn since the Great Depression.Fed Chairman Ben Bernanke argued in a speech on Jan. 3 that the Fed's monetary policy was getting too much of the blame  for the run-up in home prices.Not all economists agree. But the Fed seems more ready to acknowledge the risks of a bubble today than ever before.Bigger bubble worriesIn the minutes of its November meeting, policymakers worried that an extended period of low rates "could lead to excessive risk-taking in financial markets" -- economic-speak for the creation of bubbles.The minutes didn't identify any potential bubbles, but experts have pointed to a series of inflated markets, including U.S. Treasurys, commodities such as gold and oil and even in U.S. stock markets, which have rebounded more than 60% since their low-point a year ago.But is the fear of another asset bubble enough to spur the Fed to tighten economic policy and start pushing up rates?Many economists are doubtful. They think the Fed is less concerned with bubbles than with spurring economic growth. "I think bubbles are something the Fed needs to watch," said David Wyss, chief economist at Standard & Poor's. "But I don't see much evidence that is the dominant issue for the Fed compared to 10% unemployment and lack of sustainable growth."The Fed's statements for the last year have predicted the fed funds rate will stay exceptionally low for "an extended period." The bubble mythWyss and others say they aren't convinced that the Fed has created any new bubbles during its current period of easy money.They say that much of the run-up in prices of assets such as Treasurys and gold is due to investors' aversion to riskier assets, and not just the cheap and easy money. "You're seeing evidence still of significant risk aversion in the markets," said Wyss, who points to historically high spreads between Treasury rates and junk bond rates.During the bubble years, that spread fell to less than 3% -- an indication of excessive risk-taking that fed the boom in subprime mortgages and in turn, housing prices. When the crisis hit and credit markets froze, the spread pushed up above 17%. Today it's around 6%, or above the typical 5% pre-bubble level.0:00
      /5:13Roubini: More bubbles formingPlus, not every rise in an asset market indicates a bubble, even if prices do eventually turn lower. "Anytime the price moves up, people call it a bubble and that's a misuse of the word," Wyss said.Barry Ritholz, CEO and director of equity research at Fusion IQ, said that too many people have become obsessed with bubbles because of the problems caused by the bursting of the dot.com and housing bubbles."No one saw bubbles in 1999 or 2006, and then after missing the biggest bubbles in history, everyone is spotting bubbles," he said. "I'm always reluctant to fight the previous war."But even those who don't think there's a bubble building aren't ready to dismiss the risk if the Fed keeps the cheap money flowing."We know from history that really cheap money encourages people to do really stupid things," said Ritholz. "But I see no evidence that the Federal Reserve has created any bubbles -- and here's the pregnant pause -- yet."


    
        
         
      
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Why U.S. can't inflate its way out of debt  The Fed's great rate debate  Beware of four new asset bubbles  Surprise! The Fed says 'Don't blame the Fed.'

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(CNNMoney.com) -- San Francisco Federal Reserve Bank President Janet Yellen is a leading contender to be the next vice chairman of the central bank, according to White House press secretary Robert Gibbs.Gibbs, speaking to the press Friday, also said that Sarah Raskin, the Maryland Commissioner of Financial Regulation, and Peter Diamond, a professor at the Massachusetts Institute of Technology, are under "strong consideration" for two long-standing vacancies on the central bank's seven-member board of governors.Facebook
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Comment on this story    Janet Yellen, President Obama's pick to be the next vice chairman of the Federal Reserve.Gibbs said he couldn't give any timing about when the official nominations might be made, but he reiterated that the President hopes to have a new vice chairman in place before the current occupant of that post, Donald Kohn, retires on June 23.Yellen has long been viewed as one of the more influential of the presidents of the Fed's 12 district banks.Besides heading the branch of the Fed that overseas banks in the nine western states, she served a term on the board of governors from 1994 to 1997, and just over two years as the chair of the White House's Council of Economic Advisers during the Clinton administration. She was named president of the San Francisco Fed in June 2004.Yellen would be the second woman to hold the No. 2 position on the board of governors, following Alice Rivlin, who held the post from 1996 to 1999. It is the Federal Open Market Committee, which includes the board of governors and select Fed presidents from around the nation, which sets monetary policy, including setting interest rates. The fed funds rate, its key rate that serves as a benchmark for much consumer and business borrowing, has been near 0% since December 2008.Yellen is generally seen as a "dove" on inflation -- one who is more concerned with promoting economic growth than maintaining price stability.There was unanimous agreement among Fed policymakers about the need to cut the fed funds rate to near 0% in the face of the problems in the economy and financial markets. But as the economy shows signs of recovery, support for higher interest rate policy is gaining momentum. Other Fed bank presidents, most notably Kansas City Fed President Thomas Hoenig and Philadelphia Fed President Charles Plosser, have made comments about the need to start raising rates in order to ease fears about feeding inflation or asset bubbles down the road. Yellen's dovish view on inflation is likely to be more popular with members of the Senate who will vote on her nomination. Fed nominations are typically not very controversial. But the vote to confirm Ben Bernanke to a new four-year term as chairman turned unusually contentious earlier this year, as 30 senators, both Democrats and Republicans, voted against him.But Bernie Sanders, the independent senator from Vermont and one of the leading liberal critics of Bernanke, sent a letter to President Obama Friday arguing that the three new appointees needed to take a more activist role at the Fed. In the letter, which was also signed by four Democrats, Sanders called for any new members of the Fed to do more to limit credit card rates and bank fees and increase lending to small businesses, among other things.Yellen might not stir such strong passions as Bernanke, who was one of the main advocates who pushed Congress to pass the unpopular bank bailout. But she could face tough questions about her bank's supervision of mortgage lending during the housing bubble.Five of the seven states with the highest foreclosure rates in the nation are in the San Francisco Fed's region, according to readings from RealtyTrac released this week. The nine states she oversees account for more than a third of the nation's total foreclosures.Kohn's pending resignation gives President Obama the chance to name a majority of the Fed's board of governors. But he has been slow to put his imprint on the central bank's board.There were two vacancies when he took office, but he filled only one of those two positions. And he has yet to nominate a replacement for Gov. Frederic Mishkin, who resigned at the end of August.-- CNN Senior White House Correspondent Ed Henry contributed to this report


    
        
         
      
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Why U.S. can't inflate its way out of debt  Fed sees continued economic improvement  Hunting for Fed governors: The candidates





First Published: March 12, 2010: 12:41 PM ET

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(CNNMoney.com) -- Home prices declined at a record pace around the nation in the final three months of 2008, according to an industry report released Tuesday.The S&P Case-Shiller National Home Price Index reported that prices sank a record 18.2% during the last three months of 2008, compared with the same period in 2007. Case-Shiller's index of 20 major metropolitan areas fell 18.5%, also a record. "The broad downturn in the residential real estate market continues," said David Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement. "There are very few, if any, pockets of turnaround that one can see in the data."Get your home's valueAll 20 metro areas in the 20-city index recorded declines, with home prices falling more than 20% in eight of those cities. National home prices have dropped 26.7% since they peaked during the second quarter of 2006.In a separate release from the government, the Federal Finance Housing Agency (FFHA) reported that prices on its home purchase index fell 8.2% during the quarter on a year-over-year basis, and 3.4% compared with the third quarter of 2008.The government index, which used to be known as the OFHEO home price index, differs from the S&P Case-Shiller index in that it only compares sales of homes that are purchased with so-called "conforming loans", ones guaranteed or bought by mortgage giants Fannie Mae and Freddie Mac.Homes purchased without financing or ones too expensive to qualify for a Fannie-Freddie loan are not counted in the FFHA statistics.No slowdownThe decline does not seem to be slowing - just the opposite. The average home price dropped 2.5% between November and December in the 20 top metro areas. That was a larger increase than the 2.3% drop a month earlier."The deterioration in U.S. home prices continues apace, with the rate of decline picking up steam late last year," said Mike Larson, an analyst with Weiss Research."Rising foreclosure activity is putting pressure on prices, as lenders are increasingly pursuing a 'take what we can get' selling strategy."Karl Case, the Wellesley economist who, with Yale economist Robert Shiller, co-developed the index, pointed out during a news conference following the index's release that the markets experiencing the steepest falls also enjoyed the biggest run-ups during the boom."Those markets were driven by subprime lending expansion from the summer of 2003 on," he said. "After the [Federal Reserve's lowered interest rates] to fight against the recession of 2001, subprime took off like gangbusters."Sun Belt cities suffered the worst declines, with Phoenix down 34%, Las Vegas off 33% and San Francisco lower by 31.2%. Denver fared best, down 4%, while Dallas was lower by 4.3% and Cleveland slid 6.1%.Of the nation's three largest housing markets, New York home prices dipped by 9.2%, prices in Los Angeles dropped by 26.4% and Chicago prices declined 14.3%.  Despite the drop in home prices, which has given affordability a big boost, the pace of home sales continues very weak. Existing homes have been selling at an annualized rate of fewer than 5 million, down more than 40% from the peak. New home sales, at an annualized rate of about 331,000, are at their lowest level since the Census Bureau began keeping records back in 1963.The worst may be yet to come, according to Peter Schiff, president of Euro Pacific Capital, an investment firm specializing in overseas investments and a noted bear on home prices."Prices are going to continue to fall," he said. "They have to reflect economic reality." That reality includes stock prices down to their lowest level in nearly 12 years. "Where would real estate prices be if they went back to where they were 12 years ago?" said Schiff.The index statistics do not contain a lot of good news for the future, according to Case. "We'll learn more in the spring market," he said. "Sales should pick up and we'll begin to see how well the president's program is working. There's no evidence in the data to tell us that home prices will bottom out." Have you found a job recently? We want to hear from you. Send us an email and attach a photo. Tell us where you got hired and how you landed the job and you could be profiled in an upcoming story on CNNMoney.com. First Published: February 24, 2009: 9:00 AM ET  Who won't be helped by the housing fix  Mortgage help: Do you qualify?
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