A few more unsettling stories about the economy

First, how about the fact that the reserve fund that guarantees Ontario pension plans is vulnerable?

Ontario's unique pension-plan safety net, which makes payments when companies go bankrupt, is close to being wiped out and could fold if a large corporation were to go under soon, experts warn.

The provincial government is accepting comments on a report it commissioned in 2006 — the first review of pension laws in 20 years — and lead author Harry Arthurs concluded that the Pension Benefits Guarantee Fund, the only program of its kind in Canada, could soon become history.

"I think one sufficiently large company or several large companies (going bankrupt) would cause the plan to go broke," Arthurs said in an interview, adding that the Ontario government isn't required to save the pension-insurance program.

"They certainly have no legal obligation to bail it out ... and I think it's an interesting question: If there isn't enough money, what happens next?"

Since 1980, the Pension Benefits Guarantee Fund has provided pensioners with up to $1,000 a month in the case that a pension plan fails to provide its full benefit, or any at all.

The program is funded by corporate payments and has been run successfully for decades.

But the report notes it's increasingly common that companies are reporting high levels of unfunded pension liabilities — shortfalls in funds needed to pay pension requirements — and the provincial fund is threatened by a possible "shipwreck scenario."

That could occur if a bankrupted company with many employees flooded the fund with claims and the government found the shortfall too expensive to make up.

From the CBC. Secondly, the smart money is looking for safe havens:

Barrick Gold Corp. Chairman Peter Munk said an “unpleasant and frightening” trend of investors buying gold as protection against uncertainty in world markets may help push the metal over $1,000 an ounce.

Munk, founder of Toronto-based Barrick, the world’s largest gold producer, said he has received an increasing number of calls from wealthy investors looking for ways to buy bullion. While that is positive for the metal market, it is a “sad part of a civilized society,” Munk said.

“That’s not where you want to be, it’s alarming,” he said today in an interview from Davos, Switzerland, where he is attending the World Economic Forum. “Do I personally believe gold will break through $1,000? It’s not a question of if, it’s a question of how soon.”

The strong demand is being mirrored among professional investors whose funds are buying gold and shares of the companies that produce it. That helped the metal to its eighth straight annual gain last year and has driven a rally in gold stocks in recent months. Gold miners including Newmont Mining Corp. and Yamana Gold Inc. are taking advantage of the trend to raise cash, with new equity worth more than $2 billion sold since November.

From Bloomberg. What's interesting here is not simply that they're looking for safe havens, it's the choice of safe haven. Lately we've been hearing about deflation as a major risk (and it may well be) but the best hedge against deflation would be things like cash or bonds. Gold doesn't do as well in deflationary times (its price tends to fall along with everything else). But if you see serious inflation as a possibility, then gold starts looking good. So maybe the inflationists are right. On a similar note, consider this:

For the first time since 2007, Treasury investors are betting that inflation will accelerate.

The yield on 10-year notes exceeds the consumer price index by 2.72 percentage points, the most since December 2006. The gap between two- and 10-year rates widened at the fastest pace in a year last month as traders demanded more compensation for longer-term debt. Treasury Inflation Protected Securities that signaled falling prices as recently as Nov. 20 show they will increase in the U.S. this year.

Deflation was the growing concern for investors in 2008 as government bond yields fell to historic lows in December, the Reuters/Jefferies CRB Index of commodities tumbled 53 percent since July and home prices plunged 18 percent amid a deepening recession. Now, the bond market is saying Federal Reserve interest rates at zero percent, President Barack Obama’s $819 billion planned stimulus package and $8.5 trillion of U.S. initiatives to revive credit markets will reignite inflation.

Bloomberg once again. And let's not forget that America's biggest state is caught up in a budget crisis and is having trouble paying its bills:

Running short of cash, California has started delaying $3.5 billion in payments to taxpayers, contractors, counties and social service agencies.

With the governor and state lawmakers locking horns on resolving California's budget crunch, the controller Monday halted checks covering these obligations so the state could continue funding its school system and making its debt payments.

The delay will inflict more pain on the already sorry condition of the Golden State, which is facing a $40 billion budget gap. People won't have tax refund money to spend, businesses won't get paid for their services and agencies won't have funds to help the needy until the budget situation is addressed.

Nearly $2 billion in personal state income tax refunds are being held up, according to state estimates. Last year, some two million Californians received refunds in February.

From CNN. Of course, part of the problem arises from the fact that California not only uses a presidential/congressional system (hence no provision for early elections in the event of loss of supply) but the fact that they require a two-thirds majority to pass a budget. Not a good thing.

Yeah, this situation