EDITORIAL: 'U.S. CREDIT RATING COULD BE DOWNGRADED AS DEBT-TO-GDP RATIO NEARS 70%'

(Wall Street Journal) -- In an editorial at WSJ.com, the editorial staff at The Wall Street Journal reports that "fear of defaults by European countries sent stocks reeling" last week. And while some believe "that could never happen in the U.S.," Moody's Investors Service "caused a market stir" when it said "that on Washington's present spending and debt track, maybe it could" -- and that Moody's could downgrade America's government bond rating. According to the WSJ editorial, the ratio of U.S. federal public debt to GDP "fell in the 1990s as the economy grew rapidly and the post-1994 Republican Congress restrained spending for a time and struck a balanced budget deal with Bill Clinton." The editorial notes that in 2007, the debt ratio had soared to a concerning 36.2%, but "now the public debt ratio is climbing even faster amid slow economic growth and a spending binge, reaching an expected 63.6% this year, 68.6% next year and above 70% later this decade even by White House reckoning." Moreover, "these White House estimates are surely understated if current U.S. policies continue," the Journal opines. The editorial goes on to blast the "$2 trillion in tax hikes that Mr. Obama proposed" in his budget, saying "they will strike an economy still emerging from a deep recession." Read it at http://online.wsj.com/article/SB20001424052748704259304575043600254910186.html>

THE US ECONOMY GREW IN THE 4TH QUARTER

Why didn’t that make the headlines? Apparently only bad news makes the headlines.

'Finally Some Good News: U.S. economy grows at 5.7% pace, fastest in six years'
(AP/Yahoo!) -- The AP writes that the U.S. economy "grew faster than expected at the end of last year" at a 5.7% annual growth rate in the fourth quarter, "the fastest pace since 2003." According to the story, "The Commerce Department report Friday is the strongest evidence to date that the worst recession since the 1930s ended last year." The AP notes that "the report provided an upbeat end to an otherwise dismal year" as the "nation's economy declined 2.4% in 2009, the largest drop since 1946" and "the first annual decline since 1991." See the article at http://finance.yahoo.com/news/Economy-likely-grew-faster-in-apf-3028347842.html?x=0&.v=9>


U.S. economy grew 4.6% in Q4, Wall Street analysts predict
The U.S. economy appears to be picking up steam faster than many experts had expected. A broad range of Wall Street analysts forecast that the economy grew an annualized 4.6% in the fourth quarter, more than double the third quarter's 2.2%. That would mark the strongest quarterly expansion since 2006. Some estimates run as high as 6% GDP expansion for the quarter. The Guardian (London) (1/29) , The Wall Street Journal (1/29) , Reuters (1/28)

MORE ECONOMIC NEWS

Spending will be hurt by another dip in consumer debt

Consumer spending is expected to remain weak after the release Monday of a Federal Reserve report that showed consumer borrowing falling for a ninth straight month in October. Consumer credit was down at an annual rate of $3.5 billion in October. Economists had predicted a $9.3 billion decline. BusinessWeek/The Associated Press (12/7)


Next crisis to be in commercial real estate, experts say

A crisis looms for the commercial real estate market in 2010, then for the government-debt market, particularly in the U.S., investment managers said. "I think the next shoe to drop, which will be the world's biggest shoe, is the continued decline of the dollar and ultimately the breaking of the U.S. government market, which will set the other markets on another terrible path," said Steve Shenfeld, president of MidOcean Credit Partners. The danger of default on commercial real estate also is a major threat, Shenfeld said. Reuters (12/7)

IF YOU ARE HIRING YOU MIGHT WANT TO WAIT FOR A NEW TAX CREDIT

Lawmakers and economists like the idea of a tax credit for new job creation. A proposal to give a tax credit to companies for hiring is getting support from U.S. lawmakers, as well as former Labor Secretary Robert Reich and Nobel Prize-winning economist Edmund Phelps.

Economists in the Obama administration have been researching the idea for several weeks, but the White House has not formally announced a plan. "There's a lot of traction for this kind of idea," said Rep. Eric Cantor, the Republican whip. "If the White House will take the lead on this, I'm fairly positive it would be welcomed in a bipartisan fashion."

The New York Times

DON’T LET YOUR GUARD DOWN

It is an unfortunate fact that during tough economic times businesses experience an increase in fraud. Perpetrators can include angry laid-off former employees or staff members who justify stealing because they're worried about job security.

At the same time, organizations are so overwhelmed by the economy that they let their guards down. The result is a perfect storm for devastating losses. Make sure that you are watching your numbers, they can be an indicator that you have a problem. For more information let us know.

Larry Kopsa CPA

NEW SBA LOAN COULD HELP YOUR BUSINESS

SBA ARC Loan Program

If you are having trouble with expenses during these economic times, the SBA has a new loan program that could help.

SBA’s America’s Recovery Capital Loan Program can provide up to $35,000 in short-term relief for viable small businesses facing immediate financial hardship to help ride out the current, uncertain economic times and return to profitability.

Each small business is limited to one ARC loan. You will need to contact your bank to see if they are participating in the program.

ARC loans will be offered by some SBA lenders for as long as funding is available or until September 30, 2010, whichever comes first.

Here is a link to the SBA website.
http://www.sba.gov/recovery/arcloanprogram/index.html

COMMENTARY: Ruin Your Health With the Stimulus Plan

On www.bloomberg.com, former New York Lt. Gov. Betsy McCaughey, now a senior fellow at the Hudson Institute, writes that no one from either political party is objecting to the health provisions slipped in the federal economic stimulus bill (H.R. 1) without discussion. Senators and congressmen "should read these provisions and vote against them because they are dangerous to your health," McCaughey writes.

The bill’s health rules will affect “every individual in the United States” by creating a new bureaucracy, the National Coordinator of Health Information Technology, which will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective, according to McCaughey. The goal is to reduce costs and “guide” your doctor’s decisions. Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time.”

McCaughey writes that many of the health reform provisions in the stimulus bill come from former Sen. Tom Daschle’s book, which says that aging Americans should be more accepting of the conditions that come with age instead of treating them. "That means the elderly will bear the brunt," McCaughey writes. "Medicare now pays for treatments deemed safe and effective. The stimulus bill would change that and apply a cost-effectiveness standard set by the Federal Council."

She adds: "The health-care industry is the largest employer in the U.S. It produces almost 17% of the nation’s GDP. Yet the bill treats health care the way European governments do: as a cost problem instead of a growth industry. Imagine limiting growth and innovation in the electronics or auto industry during this downturn. This stimulus is dangerous to your health and the economy."

MORE ON BIG NUMBERS - YOU AND EACH MEMBER OF YOUR FAMILY NOW OWE $4,000.00

Recently I posted a ditty that I titled The Law of Big Numbers. See the January 28th posting. Here is more on that topic, which I find scary.

The Congressional Budget Office is forecasting a U.S. budget deficit for the 2009 fiscal year of nearly $1.2 trillion dollars. That's close to $4,000 for every man, woman, and child in the US.

THE LAW OF BIG NUMBERS

The papers have abounded with big numbers. The bail out - $700 billion dollars, the deficit - $1.2 trillion dollars, Madoff uses a Ponzi scheme to rip off investors of $50 billion dollars.

Million, Billion, Trillion

The only difference between the words is one letter and sometimes people get those things confused. I think there should be a law of big numbers so people really understand the difference between a million, and a billion, and a trillion. Everett Dirksen once said, “a million here, a million there, pretty soon we’re talking big numbers.”

Being a math guy, I like to explain it like this:

If you were going to count to a Million, and you counted one count per second, it would take you a little bit over eleven and one half days of counting non-stop.

Now lets go to a Billion, mostly when I ask people this, they usually guess 100 days. Well actually, to count to a billion, would take you 31 years and 8 ½ months. Remember, a billion is a thousand millions.

Then we can talk about a Trillion. How long would it take to count to a trillion? Do the math. Again you move the decimal point but it would take you 31,709 years plus 8 months to count to a trillion.

Another way I like to explain this is if you started a business the day Jesus was born, and your business worked non-stop seven days a week, you and your business made a million dollars a day and there were no taxes, how much money would you have? You would not even have a trillion dollars; you would only have $732,920,000,000. That’s about $733 billion for those of you that have problems with too many zeros. That was our first bail out amount and now they're talking even more.

Larry Kopsa CPA

ECONOMIC TIMES

For owners, now is the time to be leaders. For workers, now is the time to pay close attention to serving the clients. In talking to the businesses that we work with, we have found that those owners that have good dialog with their staff seem to be weathering the economic storm quite well. The others, they seem to just like to complain. Remember... this down economy will eventually pass. Today never feels like it will be history, but it will. And more likely than not, we will look back and realize that we should have known…

During World War II, the UK was facing not only a suffering economy, but also a daily pounding of heavy explosives from the enemy. In an attempt to quell the public anxiety, the British government posted signs around the city with the sage advice, “Keep Calm and Carry On.” Perhaps another reason to carry on is that, like all previous calamities, this too shall pass. And, if we keep calm, we may actually look back and gain confidence from the proof that history provides for us.

This is the time to hunker down and send a similar message.

STUDY SHOWS THE ADVANTAGE OF KEEPING MONEY AT HOME

(Grand Island Independent) -- A study examining the way businesses reinvest their revenue into local economies suggests not all businesses are created equal. Researchers compared locally owned businesses with national chains. They found that, for every $100 spent in a chain store, $14 went back into the local economy. For a locally owned business, it was $45, according to researchers from the Institute for Local Self-reliance, an organization established to provide strategies, models and information to support community development.

These numbers aren’t surprising, a local economic development expert said. “There is a commitment to the community that comes from a local owner,” said Cindy Johnson, president of the Grand Island Area Chamber of Commerce. “While we’re thrilled anytime there is growth or a new business, we’re especially fond of those locally owned businesses that are growing or new. If they are successful, those business owners understand it’s because of the community.”

While there are some exceptions, locally owned businesses tend to be more community minded, said Marlan Ferguson, president of the Grand Island Area Economic Development Corp. Still, others say consumers are king. Business is shaped by what they want, for better or worse. “Whichever business consumers choose, it might be giving them a better mix of products and better prices. There is a fundamental benefit there of improving quality of life,” said Dr. Eric Thompson, director of the Bureau of Business Research at UNL. “When people make decisions on where to spend, they make those decisions on what’s best for them. They might not consider the community impact.”

WHERE IS OUR ECONOMY HEADED?

A KINDER IRS? - MAYBE

The IRS just announced that they have recognized that there is an economic slowdown, and they are changing their collection procedures. Here is a summary of their announcement from their website.

Larry Kopsa CPA

IRS Help for Financially Distressed Taxpayers

If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.

Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults – Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.

More information is available on the IRS web site at www.irs.gov.

FIVE REASONS WHY THE ECONOMY MIGHT RECOVER FASTER THAN YOU THINK IN 2009

Here is Some Optimistic News

(U.S. News & World Report) -- There are a number of reasons to think that the economy might, just might, shift back into gear faster than most of us think or hope. One is plunging oil prices. Now they're below $40 thanks to slowing global demand. At the same time, gas prices have plunged from over $4 a gallon to around $1.67 nationally. (And some analysts think they're heading to a buck a gallon.) JP Morgan Chase economist James Glassman estimates that the drop in oil prices represents "a boost equivalent to a $350 billion stimulus." Another reason is falling mortgage rates. Rates for a 30-year, fixed-rate mortgage fell to a low, low 5.19% last week. That should help housing affordability and the ability of current homeowners to refinance their mortgages. Other reasons are the actions by the Federal Reserve, which has made it clear that the Fed will buy various debt securities to unfreeze the credit markets, and President-elect Obama's stimulus plan, as the new Democrat-controlled Congress will likely spend somewhere between $750 billion and $1 trillion over the next two years to boost the economy. The final reason is America's deep fundamentals. Overall, the core U.S. economy is in far better shape than it was in the 1970s, with a higher productivity and a better tax and regulatory system. Even though the U.S. economy finally succumbed to the oil shock and the credit crisis in 2008, it held up longer than many predicted thanks to its deep strengths. Who knows, maybe it will surprise the bears again in 2009.

LOOKING FOR WAYS TO CUT BACK?

I have received several emails lately from clients and non-clients asking for ways to cut back due to the slow economy. Every situation is different, but here are a few things clients are doing that seem to work.

1. Add a new service related to your current offerings.


2. Entice customers with a discount or promotion.


3. Ramp up customer service. Be extra attentive to existing customers, but court new ones, too.


4. Advertise. If everyone else is cutting back on advertising and marketing, this is your chance to be more visible.


5. Split advertising costs with neighboring, non-competitive businesses.


6. Trim your mailing list.


7. Set up a blog to drive traffic to your Web site.


8. Reduce your inventory to only what you need.


9. Hire an intern, who will work with you to earn college credit.


10. Renegotiate a deal with a supplier.


11. Cut back on overtime.


12. Institute a hiring freeze or use more part-time workers. This will not only save money, but also help keep you from having to lay off employees.


13. Trim the cost of benefits. Some decisions might be tough for employees, but it's better to scale back on benefits than to discontinue them entirely.


14. Use free software through Google or other Web-based programs.


15. Learn the ropes of tax deductions.


16. Send reminder letters to your past-due accounts.


17. Make a mistake on a letter? Flip it over and use the other side for future drafts and other documents.


18. Decrease postage costs by starting an e-newsletter.


19. Turn down the thermostat in the winter.


20. Turn off lights when you leave a room and shut down office equipment at night.


21. When not in use, turn off electronics chargers, which draw power even when not charging.


22. Have everyone bring in their own coffee mugs instead of going through hundreds of disposable cups each month.


23. If your business required travel, drive instead of fly. Or instead of renting a car while you're gone, take public transportation.


24. Be honest with employees about how the economy is affecting your business.


25. Offer low- or no-cost rewards (like an afternoon off) to employees who come up with other cost-cutting measures you can implement.

JUST HOW BAD IS THE ECONOMY? MAYBE YOU CAN'T BELIEVE ALL YOU HEAR

All we seem to hear is bad economic news. If you read the "real" economic news, the economy is not great, but certainly not as bad as you would think. The "talking heads" on the tube would make you think that the big depression is coming back. As the columnist George Will recently said, "an airplane that lands safely does not make news." Did you know that in October the economy rose by about 3%? That is off from past growth, but is still positive.

Here is an article that I thought might shed a little light on the subject.

(Star Tribune, Minneapolis) -- Suppose that everything you know is wrong.

· Consider the commonly held belief that corporate America is headed into a recession, tapped out for cash. Not so. Cash compared with total corporate debt is near a 50-year high.
· Certainly consumer debt appears unmanageable, with late payments nearing record levels on credit cards and real estate, right? Not true. The percentage of home loans 30 days or more past due, while rising, is nowhere near record levels.
· You say troubled home and auto loans are dragging down the economy as never before? Wrong again. While together such loans lopped 1.5 points off U.S. economic growth in recent quarters, it has been worse. In the final three months of last year, housing and auto pared more than 2 points from the chief barometer of economic progress.

“Most of that, I’ve got to believe, is behind us,” said Jim Paulsen, chief investment strategist at Wells Capital Management. Paulsen argues that the economy has more going for it than popularly believed. Paradoxically, the president, Congress and Federal Reserve officials have stoked fears instead of calming them, in Paulsen’s view. “We’ve never had a fear crisis like this,” he said. “All of our monetary and fiscal tools are to restore economic fundamentals. When it comes to fear, our toolbox is empty.” In earlier economic crises, three of every four problems were fundamental roadblocks to economic growth, Paulsen said. “This one is three-quarters fear.”