Financial News 10/17/2011

• The Economist: State and local pensions in $4.4 trillion deficit 
• Bloomberg: Euro to weaken to $1.25 per Morgan Stanley analyst
• SBT: 28-50 European banks face bond related solvency issues
• IMF: Strained European Financial infrastructure to remain 'intact' 

• FRB: Industrial production rose .2 percent in September
• CPM: State of Illinois in severe debt with low credit rating
• NY Fed: New York State experiencing business deterioration
• AP: Garbage accumulating in Greece due to strikes

Eurozone fiscal crisis information:

Greek national debt is $579.7 billion and the EFSF is €440 billion or $607 billion. Italy's national debt of $2.602 trillion is 120 percent of its gross domestic product per the European Central Bank.  Spain has a national debt of $2.46 trillion per CNBC. However, external debt of 179.4 percent of GDP is not the same as the 60.114 percent of "government finance" made public by the European Central Bank. 

The difference between 'government finance' and external debt is the former does not include long-term debt according to the World Bank. The Eurozone has a -6 percent deficit budget and inflation of 3 percent. In addition to a credit downgrade to A/A-1 with a negative outlook by Standard and Poor's as reported by Reuters, Italy's 10 year bond yields have risen almost 2 percent since November, 2010 meaning their national debt is getting more expensive. Spain also recently had its credit rating downgraded by S&P to AA-  per the Wall Street Journal.

Bloomberg reports the October 23rd crisis solution date will be postponed. This is due in part to the reluctance of banks to write down debts related to Greek bond assets per Douglas McIntyre in Wall Street 24/7, and the overall complexity of coordinating the use of the EFSF to solve the Eurozone's fiscal problems. Essentially, Greek's debt can be solved at the expense of large Euro-banks, the EFSF, and additional funding. However, Italy and Spain are too big to save and too big too fail and therefore must reduce deficit spending, increase gross receipts and lower bond yields to keep national costs under control.

Investors beware:

According to the Economic Review loan loss reserves affect bank profitability. In other words, by using those reserves to account for bad debt, write-off expenses are reduced or eliminated effectively increasing income.  This type of accounting can be misleading to investors who may do well to take note of such use of loan loss reserves when reviewing financial data.