Federal Budget Deficit to Hit $1.2 Trillion
The Congressional Budget Office (CBO) estimated last week that the federal government will run a budget deficit of $1.2 trillion in fiscal 2009, which would be 8.3 percent of gross domestic product and would increase if Congress enacts an economic stimulus package, MarketWatch said.

President-elect Barack Obama and his advisers have been working with the U.S. Congress to craft a two-year stimulus plan that could total more than $775 billion.

The trillion-dollar budget deficit is due to the economic recession that has cut tax receipts and resulted in massive government bailouts, the CBO notes. The $240 billion rescue of mortgaging financing companies Fannie Mae and Freddie Mac and a tax rebate that was part of a 2008 stimulus package will cost $168 billion over two years, CBO says, and the bailouts could cost the government $184 billion this year and $5 billion next year.

According to CBO projections, the U.S. economy will shrink 2.2 percent in 2009 before growing 1.5 percent in 2010. The CBO also said the budget deficit could fall to $703 billion in the 2010 fiscal year, which begins Oct. 1, 2009, Reuters adds.

Record Job Losses in '08, Unexpected Initial Jobless Claims Drop in '09
An estimated 2.6 million jobs were lost in 2008 — 1.9 million of them disappeared in the last four months. The job loss in the fourth quarter was the most in any three-month period since 1945, when 2.75 million jobs were lost in one year.

The nation's jobless rate for 2008 reached 7.2 percent. That's 11.1 million workers without work. Manufacturing alone lost 149,000 jobs, CNNMoney.com reports.

And, of course, it's expected to get worse before it gets better.

"We're seeing a complete unraveling of the labor market and are on track for getting beyond 10 percent unemployment," the president of the Economic Policy Institute told CNNMoney.com.

Economists expect large-scale cut-backs to continue in January and February. Given economists' dire predictions, first-time applications for unemployment benefits surprisingly dropped the week ending Jan. 3, the Labor Department said Thursday. New claims fell by 24,000 to a seasonally adjusted 467,000. In contrast, Wall Street economists predicted new unemployment claims to increase to 540,000.

The drop may be due to some layoffs occurring earlier than government analysts had expected, MarketWatch reports the Labor Department having said. Claims could remain low for a couple more weeks and then increase, the Labor Department added. The four-week average of initial claims, which smooths out fluctuations, fell by 27,000 to 525,750.

While initial claims decreased, the level of continuing claims rose sharply by 101,000 to 4.61 million. The high level of ongoing claims indicates that laid off workers are having a harder time finding new jobs, according to the Associated Press.

Digital Infrastructure Unable to Handle Unemployment Filing
The influx of unemployment filings has crashed the unemployment filing systems of New York, North Carolina and Ohio, while other states scrambled to adjust their systems to avoid a similar debacle. Approximately 4.5 million Americans are currently collecting jobless benefits.

New York's phone and Internet claims system started to buckle on Monday afternoon and was out of service completely for the first half of Tuesday while as many as 10,000 people per hour tried to get in, reports ABC News. Apparently, though, it was a software glitch in the filer identity authentication system that caused the crash and not the volume of calls.

North Carolina's Web site crashed twice last week due to the rush of claims, and Ohio's unemployment hotline shut down Jan. 5 due to a crush of callers and technical problems. The Ohio phone system was back on line Tuesday while the online claims Web site remained off line.

States that are barely coping with the strain are leaving many filers on the line for hours or sending out "All Circuits are Busy" messages.

"Regardless of when you call, be prepared to wait and just hang on," Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, said to ABC News. "Try not to get frustrated." The Wisconsin Department of Workforce Development boosted its staff of telephone operators by 25 percent last month to cope with the overload.

Bank of England Cuts Key Interest Rate
The Bank of England cut its key interest rate to 1.5 percent Thursday, the lowest since the bank was founded in 1694. The most recent cut was the fourth in as many months, bringing the rate down by fully 3.5 percentage points from 5 percent since October.

The bank argued that the rate cuts and fiscal easing, the depreciation of the pound and receding inflation pressures would provide the U.K. economy with a "considerable stimulus to activity as the year progressed," MarketWatch notes.

According to the U.K. Times, financial experts disagreed, warning that the ultra-low rates would not boost the stalled economy as savers may be deterred from depositing money. "What lenders need more than ever are savers' deposits — and they are not going to get them if they can offer only paltry rates of interest," said Ben Thompson, mortgages director at Legal & General.

The cut, however, was good news for many of the 3.7 million mortgage borrowers with loans that follow base rates.

UAW Ready to Negotiate Labor Contracts
United Auto Workers (UAW) union bargaining officials arrived in Detroit last week "to begin discussing wage and benefit concessions they must make so General Motors Corp. and Chrysler LLC can keep their federal loans" the Associated Press reports, adding that UAW president Ron Gettelfinger said the "union will ensure that 'what we do is done in the best interest of our members as well as our retirees.'"

Under the terms of the $17.4 billion rescue package granted last month, General Motors and Chrysler have until Feb. 17 to amend current labor contracts to bring labor costs in line with those of foreign auto companies with plants in the U.S.

According to GM, hourly wages for UAW workers at its factories are about equal to those paid by Toyota Motor Corp. at its older U.S. factories, with the average UAW laborer making $29.78 per hour while Toyota says it pays about $30 per hour. Including benefits and health care, GM says its total labor cost is approximately $69 per hour. Toyota's total cost is $53 per hour.

"GM's total cost will drop to $62 per hour in 2010 when a UAW-administered trust fund starts paying retiree health care costs instead of the company, but that still leaves a $9 difference, mainly due to the 'legacy' costs of century-old GM paying its retiree pensions," the New York Times says.

UAW officials would not say if or when formal talks with GM and Chrysler would begin, however both sides have met in recent weeks.

Corporate America Facing Pension Shortfalls
Plunging stock prices have created shortfalls in pension plans totaling several hundred billions of dollars for dozens of large U.S. companies, which may require them to pump in tons of cash to ensure they can handle commitments to retirees.

"With the recession expected to cause a growing number of companies to go bankrupt, the taxpayer burden could increase if the federally chartered Pension Benefit Guaranty Corp. (PBGC) were to step in to cover more shortfalls," the PBGC has said. "Corporate defined-benefit plans cover nearly 44 million Americans."

According to Reuters, Boeing Co. and Lockheed Martin Corp. have already acknowledged big hits to pension plans from recent market turmoil. Mercer estimated $409 billion of pension underfunding at companies that make up the Standard & Poor's 1500, saying that these companies may have to pump $70 billion into pension plans in 2009. That's a $60 billion increase from 2008 and would cut into earnings by 8 percent, based on $727 billion of net income in 2007. Mercer estimated that large U.S. companies could cover only 75 percent of their obligations at year end.

Indian Outsourcing Firm Admits to Fraud
Satyam Computer Services, a leading Indian outsourcing company that serves more than a third of the Fortune 500 companies and the U.S. government, has admitted to fraudulently reporting its earnings and assets for years. Chairman Ramalinga Raju resigned after revealing that he had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with a workforce of 53,000 and operations in 66 countries.

The New York Times reports Raju as having said in a letter to directors Wednesday that "50.4 billion rupees ($1.04 billion) of the 53.6 billion rupees in cash and bank loans the company listed as assets for its second quarter, which ended in September, were nonexistent. Revenue for the quarter was 20 percent lower than the 27 billion rupees reported and the company's operating margin was a fraction of what it declared."

Analyst said this disclosure could cause a major shake-up in India's enormous outsourcing industry and "may force many large companies to investigate and perhaps revamp their back offices."

On Dec. 30, analysts with Forrester Research warned that corporations that rely on Satyam might ultimately need to stop doing business with the company.