Financial Armageddon

No Longer a Widows-and-Orphans Market

It used to be said that only certain types of investments, including the bluest of blue chip stocks, Treasury securities, and municipal bonds, should be owned by those who, like widows and orphans, valued quality and safety above all else.

Given the way that things are going, however, it is getting much harder to make the case that any of those asset classes represents a truly conservative investment choice these days.

For the latest developments in the market for state and local government-issued debt, for example, check out the following Financial Times report, "Muni Bonds Feel US States’ Fiscal Stress":

California’s high-profile budget crisis and the fiscal woes of states throughout the US are taking their toll on the public finance markets, sending borrowing costs higher for states, cities, counties and other municipal issuers.

The Golden State and its gaping $24bn deficit have caught the headlines, but a handful of other states have also failed to agree on balanced budgets, even after federal stimulus. They include Pennsylvania, North Carolina, Arizona, Connecticut, Illinois and Ohio. Even the states that have passed budgets have been forced to make dramatic cuts such as closing schools and laying off staff to compensate for plunging tax receipts.

This is the first time in 20 or 25 years that we have seen a recession affect the entire nation simultaneously,” says Robert Kurtter, a managing director in the public finance group at Moody’s Investors Service. “Most have been regional or sectoral in nature, such as manufacturing recession in the Midwest or the tech bust in California.”

States, cities and other entities raise money in the $2,700bn municipal market for projects and services benefiting the public good. Interest income on the bonds is exempt from some US taxes.

Yields on California’s long-term muni bonds are hovering at 6.10-6.20 per cent, up from about 5.50 per cent a few months ago and a full percentage point more than most other states. However, they are off recent highs as opportunistic buyers have moved in.

But the uncertainty surrounding the California situation and the publicity that it has received is weighing on the overall market.

Even yields for top-rated, or triple A muni bonds, have increased slightly to 5.16 per cent from 5 per cent in the past few months. Matt Fabian, managing director at Municipal Market Advisors, a research company specialising in muni bonds, says yields should be lower, given a popular federal stimulus plan that subsidises state and other issuers to sell taxable munis, in effect drawing supply out of the tax-exempt muni market.

“People are worried about committing capital to munis right now in the face of potential credit problems and ratings downgrades resulting from the state budget issues,” he says.

By law, most US states have to enact balanced budgets. Otherwise, the financial workings of the government can go into a virtual shutdown, as has been the case in California. The state last week began issuing IOUs for payments including welfare checks and vendor bills. Arnold Schwarzenegger, state governor, has asked banks to accept the IOUs.

Even in the absence of a budget, most states have measures in place to prioritise debt service or ensure that it continues for general obligation bonds. GOs are backed by the full credit of the state.

In California, for instance, the only payments that the state makes ahead of the bonds are funds for education, such as paying school teachers.

Pennsylvania, another state without a balanced budget, has a state constitutional requirement that it maintain debt services on its GOs.

This system so far has helped to insulate the muni bond market, even as states faced cumulative budget gaps of about $120bn heading into June 30, which is the fiscal year end for 46 of the 50. Even with the lowest state credit rating, California still ranks in the single-A area.

Ratings agencies are not considering sweeping credit downgrades for states based on late budgets alone, but persistent fiscal stress may pressure credit quality.

“We don’t see late budgets by themselves causing downgrades, but the fiscal pressures faced by states across the country due to the weak economy could result in some downgrades,” Mr Kurtter said.

He also says that local entities such as counties and school districts will come under pressure after states reduced allotted spending to them to plug gaps.

Budget gaps could again open as the economic downturn continues.

“The muni credit cycle is not over yet,” says Gary Pollack, head of fixed-income research and trading in the private wealth management group at Deutsche Bank. “There is a risk that the second time around it is harder to close a budget after you have already made your cuts and received bail-out money from the federal government.”

Worth Paying Attention to

Through the years, I've learned there are a number of individuals who are almost always worth paying attention to, even if I don't necessarily agree with everything they have to say.

My (very incomplete) list includes (in no particular order) people like Marc Faber, David Rosenberg, Mike Shedlock, Yves Smith, Albert Edwards, James Montier, Jeremy Grantham, Christopher Wood, Jim Rogers, Martin Wolf, Martin Hutchinson, Edward Chancellor, Jim Chanos, Richard Russell, Jim Puplava, Jim Kunstler, Bill Cara, Barry Ritholtz, and David Tice.

As it happens, the latter individual was interviewed by Bloomberg Television on Friday, and, as usual, his views were at odds with the delusional Wall Street types who (still) dominate the air waves nowadays.

(Hat tip to The Pragmatic Capitalist.)

Financial Armageddon visitors: feel free to add your own names (via the comments) of those who usually have something interesting or insightful to say about the world of economics, finance, and markets.

Ready to Get More Committed?

Over the past several decades, a growing number of Americans have decided that married life is not for them, while those who choose to tie the knot have waited longer than before to get married.

Although there are many explanations for the trend, including more educational and vocational opportunities for women and changing social mores, economic conditions have also played a role. Among other things, the boom of the last few decades has made it easier for individuals to set up home and live on their own.

Now, though, with the economy undergoing a hard landing and millions of jobs being lost, perhaps forever, could that be setting the stage for a far-reaching change in attitudes about the benefits of being (or staying) single?

In other words, could hard times lead people to gravitate towards more committed relationships, which offer economic, social, and emotional advantages that are often unavailable to those who live on their own or in more casual arrangements?

While it is much too early to say for sure, I wonder if the following Associated Press report, "Downturn Dating: Hearts Flutter As Markets Stutter," though focused on the dating scene, is actually describing the nascent stages of a broader societal shift?

Credit the recession for "staycations" and bringing us more game-night parties at home. But also give it a shout for spurring more first dates.

Economic woes, it seems, unleash something practically primal in many of us who find ourselves without a partner: a hard-wired desire for companionship.

Some singles are now hunting for dates with the same fervor others are showing hunting for jobs. On matchmaking Web site eHarmony.com, membership is up 20 percent despite monthly fees of up to $60, and activity has soared 50 percent since September at OkCupid.com.

It's not just the frequency of our dates that's changing — it's also the people we're choosing to spend time with.

"They're looking for something that's genuine in a world that isn't very secure," said Bathsheba Birman, co-founder of the Chicago dating event Nerds at Heart. "With headlines full of why you can't trust established institutions that you thought you could ... people are re-examining their own values."

Attendance at the monthly gatherings, where mostly young professionals pay $25 for a drink and a chance to spend the evening clustered around trivia and board games — was more than double expectations in April and has stayed high since.

"Misery loves company, especially if the prospect of romance and or sex looms large," said Craig Kinsley, a neurologist at the University of Richmond. "Really, dating, rather than being considered as expensive, can be a thrilling and inexpensive distraction. Like getting drunk without the wallet-hit or hangover."

Kinsley said stomach-fluttering first dates also release brain chemicals that can temporarily erase worries, even about 401(k)s and layoffs and falling portfolios and upside-down mortgages.

Still, Sam Yagan, the founder and CEO at OkCupid.com, sees the changing dating climate as a matter of dollars and cents.

The way he figures it, a man can spend $100 buying drinks at a bar trying to pick up a stranger and leave with little more than a cold shoulder. But, when he's in a relationship, a Saturday evening can be as simple as Thai noodle takeout, Netflix and some fun under the covers. All in all, Yagan said, that's "more bang for your buck."

It's more than just the recession. Experts say changes in behavior can relate to other world events — with upticks when news is bad.

Last fall, comparing periods when the stock market fell more than 100 points and when it rose by the same amount, eHarmony found more members searched for matches when the financial news was grim. Activity also grew in the days after a tragedy like the Virginia Tech shooting, while it stayed the same during "good" global events, like the Olympics.

Unlike those one-day or weeklong events, the recession already has spanned more than 18 months, and its effects are expected to last just as long — and that likely will mean more discernible changes in human behavior.

"It ends up being a reminder that you need to look for the important things in life," said Gian Gonzaga, eHarmony's senior research scientist. "It isn't that surprising when you see people gravitating toward the most fundamental human relations."

But the trend isn't uniform.

Recessions can make some romances more challenging, experts say, especially for those who've already said "I do." The stress that comes with fear, financial problems and economic uncertainty can drive a wedge between partners.

And the most committed bachelors aren't developing a sudden hankering to buy princess-cut engagement rings.

Instead, the shifts are subtle: a devoted singleton going on more first dates; casual daters seeking long-term relationships; partners who might not have been attractive a while back — someone younger or older, someone who lives in a "geographically undesirable" area — looking much better.

At the Chicago wine bar In Fine Spirits, the changing dating culture has lead to a roughly 30 percent increase in the number of parties of two, said general manager Brandon Wise.

"With such a tenuous climate right now, I think people are looking for stability in their partner," he said. "I think it's less haphazard dating and more pointed dating."

A gentler tone is taking over, daters and observers say, with substance gaining over style.

For Mili Thomas, a 28-year-old graduate student in New York, that means she now spends time with men who didn't show up on her radar screen before the recession. Among them: a Ph.D. who would have been nixed because he lives in New Jersey and an employee at a marketing firm who wouldn't have made the grade because he is two years her junior.

"I figured this was the best possible time to explore other options since people's lives have been turned topsy turvy," she said. "I think everyone is more open to bucking convention given that 'the usual' has gone out the window."

Pretty Clear

With all of the rhetoric, obfuscation, and spin coming out of Washington these days, some might find it hard to see just where our current policies are leading us. One look at the following chart of federal receipts, outlays, and borrowing, however, and the facts seem pretty clear.

Put that together with the following report from the Associated Press, "Mountain of Debt: Rising Debt May Be Next Crisis," and it makes you wonder whether this year's July 4th holiday should really be a time for celebration.

The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion — equivalent to over $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services — or a combination of both — may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

Alexander Hamilton, the first treasury secretary, said, "A national debt, if not excessive, will be to us a national blessing."

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply — except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style "debt clock" near Times Square — put in place in 1989 when the debt was a mere $2.7 trillion — ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is "something that keeps me awake at night," Obama says.

He pledged to cut the budget "deficit" roughly in half by the end of his first term. But "deficit" just means the difference between government receipts and spending in a single budget year.

This year's deficit is now estimated at about $1.85 trillion.

Deficits don't reflect holdover indebtedness from previous years. Some spending items — such as emergency appropriations bills and receipts in the Social Security program — aren't included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government's balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number "to the penny" every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world's safest investments.

That's one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy — and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government's mushrooming debt — and what it might mean for future generations.

If things can't be turned around, including establishing a more efficient health care system, "We are on an utterly unsustainable fiscal course," said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation's true liabilities.

The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation's full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

___

On the Net:

Treasury Department "to the penny" national debt breakdown: http://tinyurl.com/yrxrsh

Peter G. Peterson Foundation independent assessment of the national debt: http://www.pgpf.org/

"Deficits do Matter" debt clock: http://tinyurl.com/l6mvjb

(Hat tip to Bruce)

All Walks of Life

Time magazine is out with an interesting report, "Thrift Nation - How Americans Spend Now," featuring a series of vignettes that detail the impact the financial crisis is having on individuals from all walks of life. Examples include:

"The Unemployed Couple":

Chris Strong for TIME

Barbara, 46, and Kevin Lowe, 52, Grand Rapids, Mich.

The cell phones were canceled; so were all subscriptions and outside entertainment. We didn't go skiing this winter, and we won't be golfing over the summer. No more wine. We used our severance and some savings to pay off Kevin's 2008 Saturn and pay down the house. We debated whether to cancel the local newspaper, but in the end kept it for the Sunday coupons. We now eat every single item in the house until it's gone. If that means we have curly pasta and penne and spaghetti all mixed up, so be it. I have 101 ways to use half-eaten boxes of pasta. We're much more careful shopping — no more running in to get one or two things. We wait until we have a big list, and then buy only what's on that list — and at the local grocery warehouse, not the food boutique.

You'd be amazed at how you don't even know where your money goes. It took us a couple of months to get a firm handle on our expenses. There are some things you only pay a few times a year and you forget them, and then they crop up and you don't have $40 for the water bill or veterinarian. I distributed flyers around the neighborhood offering babysitting and elder-care services. I can take care of an infant for a few hours as well as any high school girl. I'm tired of waiting for someone else to offer me a job.

It's hard to invite people for dinner, so we don't accept many invitations. We went to the art show on the day tickets were discounted, and told friends we'd brown-bag our lunches. One of them said we could go to a cheap restaurant, but I can't. I'm not sure they really understand how it is. I know I didn't until it happened to me.

We are still confident something is going to come up. We have discovered we can live on a very small amount of money, but we need to find something with health insurance before our COBRA expires. We take turns having meltdowns.

"The Gun-Store Owner":

Danny Wilcox Frazier / Redux for TIME

Jody Windschitl, 49, Missouri Valley, Iowa

Our sales are up about 33% this year compared with last. As an industry, they say it's the "Obama effect." We have never been in business when the Democrats are in office. We've been told that gun sales go through the roof, and they weren't kidding. We can't even get stuff. Ammunition has just dried up all over the country. Right now we're so busy, we've had to hire one person. People are afraid also of the Democrats' putting a ban on firearms — that's the biggest fear factor.

I used to see about five M-15s sold a year. Until about two weeks ago, we were selling about five a week. Now it's three a week. More women are buying, especially older ones. A lot of them are widows who are alone, and they want to have self-protection, just because of the economy. We've had a lot of robberies and break-ins in our area, and they're attributing that to people being out of work.

"The Emergency-Room Doctor":

Bill Cramer / Wonderful Machine for TIME

Naisohn Arfai, 33, Philadelphia

I started in mid-July. I was a resident here, so I'm not entirely new to the system, but I'm new as an attending physician. You feel like you're at the front lines in emergency medicine. It's both rewarding and very painful at the same time. I feel like I've seen more people coming in in the past half-year telling me they can't afford their blood-pressure medicines. They haven't been able to see a doctor for a while. They used to have a doctor, but they're not covered anymore.

They come in when they've reached a point of desperation. They could be having a stroke or a heart attack or kidney failure. But more commonly what we see is people who are coming in with recurrent headaches. They feel lethargy. They feel like they're having blurred vision, headaches. Sometimes they have some mild chest pain or difficulty breathing. They come in, and they say, "I know my blood pressure's high. These are the kind of symptoms I get." It's frustrating, because you know you can remedy it temporarily, but in the long run, how can I be sure that these people are going to be seen by a physician after they leave?

There are times when people will come in and they'll need a chest X-ray, but they'll ask, "Well, how much is this going to cost me? How much is a CT scan going to cost me?" Oftentimes I don't see these people again. I don't get to see what happens after they leave the ER.

Here is the complete list:

1. The Unemployed Couple
2. The Sports CEO
3. The Restaurant Owner
4. The Autoworker
5. The Financial Adviser
6. The Blackjack and Roulette Dealer
7. The Gun-Store Owner
8. The Boutique Owner
9. The Bulk Shopper
10. The Organic Gardener
11. The Movie-Theater Concessionaire
12. The Emergency-Room Doctor
13. The Grocery-Store-Outlet Owner
14. The Therapist
15. The Financial-Aid Officer
16. The Doggie Day Care Owner
17. The Free Health Care Clinic CEO

Buzzkill for the Bottom-Callers

Whenever I get the urge for a quick shot of reality (which is, admittedly, quite often), I like to hear what those on the economic front lines are thinking and doing. I'm not referring to the clueless wonders on Wall Street or in Washington. Rather, I mean those who ply their wares on Main Street and who can't afford to get caught up in "green shoots" fantasies or other such nonsense.

With that in mind, I found the following report from the Association of Finance Professionals (which probably has a few Wall Street types as members, though luckily they are in the minority), "Companies Stockpiling Cash, Credit Access Still Tight, AFP Survey Shows," to be a real eye-opener -- or what a cynic might describe as buzzkill for the bottom-callers.

42% increase short-term holdings; most move to more conservative vehicles

With little easing in access to credit, U.S. organizations are continuing to stockpile cash, according the Association for Financial Professionals' 2009 Liquidity Survey. Almost three-quarters (72%) of companies had increased or maintained their U.S. cash balances during the first part of 2009.

According to the new AFP survey, 42% of organizations increased their U.S. cash and short-term investment balances between December 2008 and May 2009, while 30% saw no significant change in short-term cash balances. More than a quarter (28%) of organizations saw their U.S. cash and short-term investment balances deteriorate over the six-month period. Organizations with non-investment grade ratings were more likely to have seen their cash and short-term investment balances shrink.

"Despite unprecedented government action, the lack of any significant thaw in short-term credit access is extremely troubling and many companies are reacting by stockpiling cash," said Jim Kaitz, President and CEO of AFP. "While, many organizations with their strong cash positions will be well-positioned once the economy begins to improve, overall economic conditions will not improve until organizations can begin using their cash in activities that foster growth."

This is the fourth annual survey performed by AFP focusing on how organizations manage their short-term investment portfolios. This year's survey also repeated questions about credit access that AFP asked its members in two surveys conducted late last year as credit markets deteriorated. The AFP 2009 Liquidity Survey was underwritten by The Bank of New York Mellon.

Despite recent reports about an easing in the corporate credit markets, over half (59%) of survey respondents indicate that their organizations' access to short-term credit has not changed significantly since the beginning of 2009. A larger percentage of organizations reported that credit was less available (27%) versus 14% that indicated that credit access had improved. Two-thirds of organizations expect their access to short-term credit to remain the same over the next year.

Overall, financial professionals do not expect their organizations' to decrease short-term cash and investment balances over the next year. Only one-quarter (27%) of organizations expect to decrease their U.S. short-term cash and investments balances.

"The turbulence of the present period has had no small impact on the liquidity needs and practices of individuals and corporations worldwide," said Eric Kamback, BNY Mellon's CEO of Treasury Services. "The survey also revealed that many believe the tightening of available credit will persist in 2009, so conservative, safety-based investment strategies can be expected to continue."

Organizations have moved to a more conservative investment strategy for their short-term balances and have reduced the number of vehicles they use for short-term investments. Organizations are allocating 78% of their short-term investment balances to three safe and liquid vehicles: bank deposits, money market mutual funds and Treasury securities. The use of commercial paper, separately managed accounts and auction-rate securities declined significantly over the past year. While investment policies allow for the use of four or more investment vehicles, on average, organizations use 1.6 investment vehicles compared to 2.4 options in 2008.

The vast majority (93%) of survey respondents indicated that their organizations have taken at least one action as a direct result of the decline in short-term credit access in September, 2008. The following are some of the most widely implemented defensive actions taken:

• Reduced capital spending (70%)
• Reduced or froze hiring (69%)
• Considered/implemented staff reductions (58%)
• Moved all or most short-term investments to bank deposits and U.S. Treasury securities (44%).

Finally, financial professionals are generally hopeful about an economic turnaround. [My take: aren't we all?] Almost three quarters (74%) of survey respondents believe that the worst is over and that credit markets will start easing by the end of this year. [My take: if they truly believed that, wouldn't they be "unbattening" the hatches -- that is, taking different actions than the ones described above?]

In May 2009, the Association for Financial Professionals conducted the survey on strategies associated with the management of short-term investments, receiving 360 responses from professionals at a broad range of organizations. Respondents represented organizations in manufacturing, insurance, energy, financial services, retailing, and other industry sectors.

Liquidity Resources:

AFP 2009 Liquidity Survey: http://www.afponline.org/liqreport
Interpretive video: http://www.afponline.org/liqvideo
More on cash and liquidity management: http://www.afponline.org/cashsessions
CNBC interview with AFP's president, Jim Kaitz: http://www.cnbc.com/id/15840232?video=1168249148&play=1

Not Just the Flow of People

In When Giants Fall, I highlighted a May 2008 VoxEU.org column by Drew Keeling in which he argued that "the economic risks of working abroad, particularly the risk of cyclical recessions, and the availability of family networks to help cope with those risks, were crucial factors determining who migrated and how they migrated."

In other words, once the economic tide reversed course, it was a good bet that immigration patterns would follow suit.

As it happens, an article published in the Wall Street Journal earlier this month, "The Great U-Turn," noted that "global migration flows reverse for the first time since the Depression as work in the rich world dries up."

Well, it appears that it is not just cross-border human traffic that is changing direction. In "Immigrants Who Wired Their Wages Home Are Now Asking Their Families to Send them Money," the Associated Press reports that cross-border money flows are also being affected.

For five years, immigrant day laborer Leo Chamale wired money twice a month from New Jersey to his family in Guatemala. Recently, he stepped up to the money transfer window for a different purpose -- to ask that his family send some of his savings back to him.

"I hadn't worked for five months, and I was two months behind on rent, so I had them send $1,500," the 21-year-old Chamale said in Spanish. "My mother said, `That's a lot of money!'"

With the U.S. economy in a ditch, money transfer agencies have been reporting a decline in the wages immigrants are sending back to their home countries. Now, it appears some immigrants are going a step further -- asking their relatives to wire them money back.

"We've never seen this before," said Marlen Miranda, manager of Peerless Travel in Fairview, which runs a money transfer service. "I mean, one or two people might receive money for a special reason, but not this quantity of people."

Miranda said she has seen her customer base dwindle from 200 people to 75 who regularly use her money transfer services each month. Of those 75, Miranda said, about 20 now come in to receive money instead of sending it home.

"They can't send them much, because the economy in their countries is so bad," Miranda said. "Sometimes people only receive $20 from home."

It is not clear how much money is being sent back to the U.S. or how widespread the phenomenon is. Large money transfer agencies, such as Western Union, said they do not disclose how much money is sent or received by their field offices. Banks in foreign countries often track only money sent into the country by their citizens living abroad.

But clearly, these "reverse remittances" -- as the money wired back to the U.S. is called -- are extremely small when compared to the money immigrants send home.

Immigrants working in the U.S. sent more than $50 billion back to their native countries last year, according to the World Bank, which predicts the amount will drop 5 percent in 2009. Mexico's central bank said remittances sent to that country are down more than 18 percent in the past year, and registered their biggest decline on record in April.

Alejandro Tejada, manager of Tenares Communications, a Western Union office in Passaic, said he, too, has noticed money flowing in reverse, into the U.S. -- a phenomenon he rarely, if ever, saw before.

It began around late March, Tejada said, after a tough winter in which construction projects and other ventures that usually employ immigrant day laborers ground to a halt.

World Bank economist Dilip Ratha said he devised his own measure of how much money is sent back to immigrants living in the U.S. and other countries. Analyzing foreign currency deposits in the Dominican Republic, Mexico and India from February 2008 to January 2009, Ratha found that immigrants from those countries tapped into their savings accounts -- money they had previously wired home -- at an accelerated rate as the global economy worsened.

The amount of foreign currency on deposit declined 7 percent in the Dominican Republic, 12 percent in India, and 6 percent in Mexico during the 12-month period, Ratha said.

Nevertheless, "people are sending far, far, far more back home than what they are taking out," he said.

Ratha said the surge in money wired back to the U.S. will not last long.

"The ability of, let's say, a Mexican family or a Nepalese family to be able to send dollar remittances to maintain somebody to pay for living expenses in the U.S. or in Europe is very weak, because they are very poor," Ratha said. "And the savings that are there of the migrants are also not very significant in most cases -- so those savings will run out very quickly."

Standing on a street corner a recent morning in Palisades Park, looking for work, Chamale said he is now hoping to earn just enough for a plane ticket home.

"I was forced to ask for money from home during the winter months," he said. "After that, I said to myself, `That's it -- I'm heading back to my country.'"