Canaries In The Coal Mine

April 13, 2010

by Al Doyle

For hundreds of years, caged canaries were kept in coal mines. If the birds died, it was a sign that oxygen levels were falling, and it gave the miners an early warning to get out before disaster struck.

In a worldwide economic slump, not all nations feel the pain at the same time or with a similar intensity. Those who are aware of the overall trend need to look beyond their immediate circle for signs of what could happen ahead. Here are a few indicators (canaries) to consider.

The official unemployment has risen from 1 to 9 percent during Icleand's economic collapse, but those numbers don't tell anywhere near the whole story.

"The crisis that brought down Iceland's economy in late 2008 threw tens of thousands of formerly well-off families into poverty," reports The Australian newspaper. In a nation with a population of just 317,000, adding "tens of thousands" to the poverty rolls represents a radical shift.

"Each week, up to 550 families queue up at a small white brick warehouse in Reykjavik to receive free food from the Icelandic Aid to Families organization, three times more than before the crisis.

"The families we welcome here represent 2700 people, and the numbers keeps going up," according to manager Asgardir Jona Flosadottir. "And we think the number will continue to grow until next year at least."

More than 10,000 people left Icleand in search of work in 2009, and Norway is the most popular destination. Former real estate agent Anna Margret Bjoernsdottir ispart of the growing exodus.

"I just don't see any future here," she said. "There isn't going to be any future in this country for the next 20 years. Everything is going backwards."

From the Manila Times: "Greece's debt problems may currently be in the spotlight, but Japan is walking its own financial tightrope with a public debt mountain bigger than any other industrialized nation. Public debt is expected to hit 200 percent of gross domestic product (GDP) in the next year as the government tries to spend its way out of the economic doldrums despite plummeting tax revenues and soaring welfare costs for its aging population."

Japan's expected debt of 95 trillion yen averages out to 7.5 million yen ($80,240) per Japanese citizen.

There are plenty of sickly canaries to watch in the U.S. economy as well. Funding for state and local government pensions fell from 84 percent in 2008 to 78 percent in 2009, with pension funds in Illinois somewhere under the 60 percent level. That trend will continue, says Alicia Munnell, director of retirement research at Boston College.

"Under the most likely scenario, we see the funding rate deteriorating to 72 percentin 2013," she warned.

Los Angeles continues to flirt with bankruptcy, as the city's budget could have a deficit of as much as $500 million.

"Certainly there's a chance [of bankruptcy]," declared Los Angeles Chamber of Commerce CEO Gary Toebben during an interview with FOXBusiness. "The city is in a dire financial situation, and it makes no sense to have workers working when you can't pay these bills."

It now takes an average of 31 weeks for an unemployed or laid-off U.S. worker to find a new job. That is the longest period for re-employment since 1948.

It's not just California, Phoenix and Las Vegas any more, as America's real estate crash is spreading to the normally stable Midwest. The inventory of unsold homes grew by 48 percent in Cincinnati in 2009 as compared to the previous year.

Unsold homes on the market rose by 42 percent in Milwaukee and 36 percent in St. Louis. Even Denver -a perennially popular destination for newcomers - saw its supply of homes for sale rise by 27 percent.