Geithner: U.S. to hit debt ceiling on Monday

Treasury Secretary Tim Geithner warned Congress in a letter that U.S. borrowing will hit the debt ceiling on Monday, and that Treasury will begin using 'extraordinary measures' to keep under the cap.

NEW YORK (CNNMoney)

As a result, the Treasury Department will soon start using what it calls "extraordinary measures" to prevent government borrowing from exceeding the legal limit.

Such measures include suspending the reinvestment of federal workers' retirement account contributions in short-term government bonds.

On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling.

All told, the extraordinary measures can create about $200 billion of headroom under the limit -- normally about two months worth of borrowing.

But it's unclear how much time the extraordinary measures can buy now because there are so many unanswered questions about tax and spending policies, Geithner said, referring to the lack of any resolution of the fiscal cliff.

"If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures," he wrote.

After the extraordinary measures run out, Treasury won't be able to pay all the country's bills in full and on time. At that point, the United States will run the very real risk that it could default on some of its obligations.

Geithner has predicted for months that the country would hit the debt ceiling by the end of December.

But Congress, first consumed with the 2012 elections and now with the fiscal cliff, has made little effort to raise the ceiling.

Now there's a good chance the debt ceiling issue won't be resolved until the 11th hour and only after an ugly fight.

Indeed, some Republicans have been saying they view the debt ceiling as leverage in budget negotiations in early 2013 in their bid to secure spending cuts.

Before fiscal cliff legislation died last week, House Speaker John Boehner offered President Obama a one-year debt ceiling increase, but only on the condition that spending cuts and reforms exceeded the size of any increase.

The last standoff over the debt ceiling in 2011 ended badly, with Congress raising it only at the last minute. The debacle led to the downgrade of the country's AAA credit rating and caused tumult in the markets.

The Government Accountability Office has long called for Congress to come up with a smarter way to handle the debt ceiling.

"Congress should consider ways to better link decisions about the debt limit with decisions about spending and revenue to avoid potential disruptions to the Treasury market and to help inform the fiscal policy debate in a timely way," the GAO said in a recent report.

Meanwhile, a variety of fiscal and monetary experts have called for the debt ceiling to be abolished altogether.

First Published: December 26, 2012: 4:32 PM ET

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'Marriage penalty' could make costly return

NEW YORK (CNNMoney)

As a result of the Bush tax cuts, married couples get a standard deduction that's exactly twice that of individuals. And the income ranges for the 10% and 15% tax brackets are also doubled. Prior to 2001, many married couples had paid a "penalty" because their standard deduction and income tax brackets were less than twice those of singles.

Next year the imbalance could return. While the standard deduction for single filers should rise to $6,100, married couples would receive a deduction of only $10,150 if lawmakers don't extend the provision, according to estimates by the Tax Foundation. To erase the marriage penalty, it would have to be $12,200.

Married couples would also be moved into higher tax brackets more quickly. Individual taxpayers would be in the 15% tax bracket until they hit $36,250 in taxable income, but married filers could be pushed above it after only $60,550 in income, as opposed to $72,500.

The marriage penalty never went away for higher tax brackets above 15% -- and that would continue to be the case. Even if the Bush tax cuts are extended, the 25% bracket would end at $87,850 for singles, but only at $146,400 for joint filers. And the highest bracket starts at the same income level regardless of whether the filer is a married couple or a single person.

Related: Going over the Cliff - what changes, what doesn't

Married couples benefiting from the Earned Income Tax Cut would also get hit if the fiscal cliff isn't addressed. The last two administrations raised the income threshold at which the credit begins to phase out for married couples to $5,000 above the amount for individuals.

Of course, the marriage penalty is only one of a bevy of provisions that are set to expire after 2012 so exactly what both married couples and single filers will pay next year remains up in the air.

First Published: December 26, 2012: 11:01 AM ET

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Toyota to pay $1.1 billion in recall case

In one of the largest of its kind, Toyota agreed to pay $1.1 billion to settle claims of acceleration issues in 2009-2010.

NEW YORK (CNNMoney)

This is one of the largest lawsuits of its kind, according to Steve Berman, one of the lead plaintiff lawyers.

Under the agreement, Toyota (TM) will also install a brake-override system in cars where acceleration pedals got stuck in floor mats, leading them to accelerate unintentionally.

The company will also set up a fund of $250 million to be paid to former Toyota owners who sold their cars between Sept. 1, 2009, and Dec. 31, 2010, to compensate the owners for the reduced value of the cars from the negative publicity.

A statement from the attorneys representing Toyota owners said that a separate fund of $250 million will be established to compensate current owners whose vehicles are not eligible for a brake-override system.

About 16 million current owners will be eligible for a customer care plan, that will provide a warranty on certain parts tied to unintended acceleration for between three and 10 years.

This settlement doesn't cover any product liability or personal injury claims related to unintended acceleration issues, according to a Toyota spokesperson.

The car maker said that the settlement will lead to a one-time, $1.1 billion pre-tax charge against fourth quarter earnings to cover the costs.

Related: Toyota set to reclaim 'top car maker' spot from GM

Until these problems surfaced, Toyota held the top reputation for vehicle quality and safety. But since then, it has been dogged by significant recall problems. It has already announced recalls of more than 10 million vehicles worldwide for various problems so far this year.

Earlier this month, the car company agreed to pay a record $17.4 million to the National Highway Traffic Safety Administration for problems related to a 2012 recall in one of its Lexus models. That's the largest fine allowed by law for a single investigation.

And in November, it recalled 7.43 million cars due to a power window problem that poses a fire risk.

In 2011, Toyota relinquished its title as "the world's biggest car marker," when car recalls and Japan's earthquake and tsunami delivered a blow to sales and production.

But the Japanese car maker has since staged a comeback, thanks to a banner year of sales worldwide.

First Published: December 26, 2012: 5:08 PM ET

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Stock subdued as wait for Washington continues

Stocks ended Monday's short session weaker

NEW YORK (CNNMoney)

U.S. stock futures were slightly weaker, after U.S. markets continued to slide during a thinly-traded holiday shortened session Monday. Investors remain concerned that Congress and the administration will be unable to break the deadlock in talks to resolve the looming fiscal cliff crisis.

President Barack Obama is ending his vacation Wednesday to make a late bid to reach a deal before the year ends. The White House said he should be back in Washington Thursday, when House and Senate members are expected to reconvene.

Related: What will happen to stocks if we go over the cliff?

The one economic report due Wednesday is expected to contain some good news, as S&P Case Shiller reading on home values is likely to show continued improvement in the housing market. There are also likely to be some early readings on the strength of the holiday shopping season.

But other economic readings followed by investors aren't due until Thursday, and there is no corporate news scheduled.

So Wednesday could well be another low news, low trading volume day, which can lead to volatility in the markets.

Fear & Greed Index

European markets were closed Wednesday for the Christmas holiday.

Japan's Nikkei index gained 1.5%, and the yen continued its recent slide against the dollar as the country's parliament elected Shinzo Abe as prime minister. Abe, who won a landslide election victory earlier this month, has promised aggressive stimulus measures to combat deflation and get the world's third-biggest economy growing again. Other Asian markets were flat. Hong Kong was closed.

First Published: December 26, 2012: 5:08 AM ET

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Trade penalties squeeze U.S. dry cleaners

Dry cleaners are paying more for hangers since the U.S. imposed heavy trade duties on ones from Vietnam, says 3Hangers Supply Company.

NEW YORK (CNNMoney)

In June, the U.S. imposed temporary duties as high as 187% on hangers from Vietnam, a top exporter of wire hangers, after finding that the country was unfairly subsidizing its hanger exports. In mid-January, the U.S. will announce whether these duties will become permanent.

The trade penalty has triggered a hanger shortage and pushed up wholesale prices, said Sam Monempour, vice president of 3Hanger Supply Company. His company is paying 10% to 15% more on average for new hangers.

3Hanger used to buy all of its hangers from Vietnam. Not anymore. Some of 3Hanger's Vietnamese suppliers have either shut down completely, or relocated their manufacturing to Cambodia or Mexico to escape U.S. tariffs.

To recoup some of the rising supply costs, Monempour's company has upped its prices 1% to 2% to customers like Flora Yadegar, who operates four dry cleaners in California.

Related story: Your dry cleaning bill's about to get worse

Yadegar has tacked on 10 cents per garment to her dry cleaning prices since July to offset the higher costs. She uses as many as 500 hangers a day in her busiest location, and her bill for hangers has been steadily increasing, rising about 25% over the past five years, she said.

The added cost is putting more pressure on her business, which has been struggling in recent years, said Yadegar, 55.

Her average customer is spending $20 to $25 a week, down from $40 a week. "I used to get two suits and 8 shirts a week," she said. "Now I get maybe one suit and four shirts."

"We're already paying more for electricity, salaries, chemicals," she added. "I'm losing customers, my business is going down."

Across the street from one of her locations, two rival shops went out of business this year. While that helped bring in more customers, they didn't spend enough to boost her revenues much.

At another location, she's only making enough to pay rent and her workers. She's considering closing that shop.

Indeed, many dry cleaners are struggling these days, and higher hanger prices aren't helping, said Harry Kimmel, spokesman for industry trade group Dry Cleaning and Laundry Institute.

"The economy has hurt the industry. People aren't dry cleaning as much," said Kimmel, adding that his organization has seen membership fall steadily in recent years. "Some dry cleaners are leaving the industry and moving on to something else. Others can't afford to stay in business."

Related story: China tariffs could slam U.S. solar panel firm

Willie Gillard, 58, owns and operates Community Cleaners in Marion, S.C.

Like Yadegar, Gillard is paying more for hangers. "I used to get 500 hangers for $40. Now I get about 250," he said.

Gillard, who opened his dry cleaning business only this May, is worried. Gillard launched the firm after retiring from a 40-year factory job, hoping the business would keep him busy during retirement and help bring in some extra income.

Lately, he's feeling a little nervous about his decision because his costs are rising and he's not making any money yet.

He's debating raising his prices, but hasn't done it yet because two other dry cleaners in the area have kept their prices steady.

"I have to stay competitive [with them] or I won't get more customers," he said.

First Published: December 26, 2012: 5:16 AM ET

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Payback time: Florida homeowners foreclosing on banks

Hundreds of homeowners associations are foreclosing on banks that have failed to pay dues and other expenses on the properties they've repossessed.

NEW YORK (CNNMoney)

Hundreds of homeowners and condo associations are foreclosing on banks that have failed to pay dues and other expenses on the properties they've repossessed.

When banks foreclose on a home they become responsible for paying fees to the homeowners association -- both any unpaid fees going back as far as 12 months and all expenses going forward.

In many cases, however, banks are failing to pay, leaving these associations short on cash, according to Miami-based attorney Ben Solomon.

But now, homeowners groups are putting liens on the properties until banks pay up and foreclosing on them if they don't.

Related: American Dream homes: Prices in 9 cities

So far, Solomon's firm has filed more than 1,100 liens against banks on behalf of homeowners and has pursued 131 foreclosures. In more than 90% of the cases, he said, the banks settle by paying the bills.

The banks' failure to pay dues has consequences. Other homeowners have to make up the difference, or the homeowners associations may lack the money they need for things like routine maintenance, security, water and garbage collection.

Don Gonzales owns a townhouse in a condo community on a golf course in Homestead, Fla., where Solomon recently filed suit to foreclose on JPMorgan Chase (JPM, Fortune 500) to recover $20,000 it owed on more than two years of dues and common charges.

"I own two properties and it really ticks me off when the banks don't pay their fair share," he said. "Everybody else has to make it up."

Because of the shortfall, the condo association had to cut down on security and postpone maintenance. "We haven't had our blacktop resurfaced for years: It looks terrible," he said. "We have palm trees where we used to have the coconuts taken off. It's a safety issue, but we can't do that now."

Related: There's a home price recovery but it's really, really slow

Chase would not comment on this specific case but did confirm that it is responsible for paying all dues or fees on properties it owns after foreclosure.

The Southbridge Homeowners Association in Pembroke Pines, Fla., is owed about $1 million by several owners, many of them banks that took possession after foreclosures, according to Marc Lebron, the association's treasurer. To make up for delinquent payers, Southbridge has had to hike maintenance fees to $260 from $145.

But it's also trying to get what's due. The association filed for foreclosure against Deutsche Bank (DB) last spring after the bank failed to pay fees for more than two and a half years on a home it owned since September 2009.

Deutsche and other banks claim that they are just trustees of the property and that the mortgage company servicing the account is responsible for paying the fees.

That could be the case if the mortgage servicer held the property's title after the foreclosure, said Michael Gelfand, an attorney who has instructed the Florida Bar Association on the rights of homeowners associations and banks in these cases. The title holder is responsible for the fees, he said.

Typically, however, after banks foreclose on a property they are almost always the official holder of the mortgage, said Solomon.

Related: Short sales jump ahead of tax hike

As in a vast majority of the cases Solomon has filed so far, Deutsche Bank settled. After the foreclosure paperwork was filed, the bank agreed to pay the back dues of $25,513.

Only in very rare cases do homeowners associations end up pushing the foreclosure all the way through to the auction sale of the properties. This has happened only once for Solomon.

In early November, Keys Gate Community Association in Homestead, Fla., brought a foreclosure on a property owned by mortgage servicer, NovaStar, which owed $22,890 in back dues and fees.

In mid-November, the association foreclosed on NovaStar and the home was sold at auction to a third party for $62,000, fully paying off the debts to the association. Novastar did not respond to a request for comment.

First Published: December 26, 2012: 5:29 AM ET

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Italy's Monti may lead again, reforms key

Monti says he may be a candidate for prime minister if asked by reformist parties

LONDON (CNNMoney)

Monti stood down, and parliament was dissolved Friday, after former Prime Minister Silvio Berlusconi withdrew his support for Monti's unelected government of technocrats, appointed a year ago to save Italy from the financial crisis then threatening to tear the eurozone apart.

Speaking on Sunday, Monti said he was more concerned that his policies survived than taking sides in the campaign but added he was ready to offer advice and leadership if a party or coalition came forward with a program he could support.

"I would be much more interested if the Monti agenda - and I apologise if my name appears here - would serve to provide clarity and perhaps help unite the forces," he said at a news conference.

Monti, an economics professor and former European Commissioner, has been credited with restoring confidence in Italy, as well as with its eurozone partners and investors, thanks to his commitment to reduce government borrowing and introduce economic and political reforms.

"While he may not have thrown his hat into the ring, Il Professore has become Il Politico whether he likes it or not," said Nicholas Spiro, managing director of London consulting firm Spiro Sovereign Strategy.

Related: Greece may remain in euro after all

Yields on 10-year Italian government bonds have risen recently on the renewed political instability but remain way below the 7% level Monti inherited a year ago, when he succeeded Berlusconi, who resigned under a cloud of scandal.

In a taste of a bitter election campaign to come, Berlusconi criticized Monti's lack of business experience and said his government had made too many errors

"Last night I had a nightmare, I woke up screaming. I dreamed of a government still with Mario Monti as president of the council," he said, according to the transcript of an interview posted on his website.

Fiscal tightening, weak confidence and tight credit supply have kept Italy deep in recession for the past five quarters. The economy is expected to shrink by about 2.4% this year, and continue to contract in 2013. Unemployment hit 11% in October and is forecast to rise even further next year.

Related: Europe needs new ideas - Vodafone CEO

Opinion polls suggest the center-left Democratic Party led by Pier Luigi Bersani will win the lower house elections, but may need to build a coalition to gain a majority.

Bersani said in a statement on his website that he had no reason to apologize for supporting Monti's program in government and would consider his policy proposals carefully.

Analysts at Nomura said a Bersani-led government including Monti in some capacity was the "best case" likely outcome for financial markets but cautioned that even such a government may struggle to implement reforms, particularly if it failed to win a majority in the upper house.

"Given all this political uncertainty, we see a non-negligible risk that markets will become unsettled over Italy again early in the new year," wrote Alastair Newton in a research note.

-- CNN's Alex Felton contributed to this article

First Published: December 24, 2012: 9:47 AM ET

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Last minute shoppers bring hope to stores

Shopping has ramped up as consumers rush to get last minute gifts, but experts say the late push may not be enough to save holiday retail sales.

NEW YORK (CNNMoney)

Estimates for the final shopping weekend aren't out yet, but there's evidence that more shoppers were coming into stores as the holidays drew near.

At North Point Mall in Alpharetta, Georgia, the parking lots were at capacity this past weekend, and it was standing room only at the food court, according to the mall's general manager Nick Nicolosi.

"By the amount of bags I saw, with people carrying four or five each, it's looking like a great season," he said.

A poll conducted by The NPD Group and CivicScience revealed that 42% of consumers were still shopping for the holidays last week, since many have been groomed to wait for better deals later in the season.

Related: Last minute deals at Wal-Mart, Target, Bloomingdales

The long holiday shopping calendar also played a role in why many customers waited, said Bill Martin, founder of ShopperTrak, which analyzes retail foot traffic.

"Many consumers delayed their Christmas shopping -- and with good reason," he said. "They saw 32 shopping days between Black Friday and Christmas."

Even if shopping ramped up during the final rush, experts are expecting disappointing numbers for the holiday season overall.

Superstorm Sandy forced many stores to close for days in October and early November. It also left many people in the Northeast without power for weeks, hurting their psyche. Looming worries over whether tax rates will go up from the fiscal cliff has also kept shoppers from going overboard with their holiday lists.

ShopperTrak lowered its holiday sales forecast for the months of November and December. It now predicts that sales will increase 2.5% over last year, down from the 3.3% it initially projected in September.

Retailers were pulling out all the stops at the last minute to lure in late shoppers.

Toys R Us stores were staying open open for 88 consecutive hours until 10 p.m. on Christmas Eve. Macy's (M, Fortune 500) stores were open for more than 48 hours straight.

Other retailers are handing cash back to customers. For every $50 spent at Kohl's (KSS, Fortune 500), the department store gave out a $10 store coupon. Target (TGT, Fortune 500) handed out gift cards worth up to $130 to shoppers who bought certain Dyson vacuums. And Wal-Mart (WMT, Fortune 500)slashed prices on iPhones and iPads.

Trae Bodge, senior editor of RetailMeNot.com Insider, said that these discounts are a sign that retailers want to get stale inventory moving, since shopping so far this season has been slow.

First Published: December 24, 2012: 12:02 PM ET

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Stocks tumble as fiscal cliff deadline nears

Click for more market data.

NEW YORK (CNNMoney)

The Dow Jones industrial average fell 0.4%. The S&P 500 and the Nasdaq both lost about 0.3%. U.S. markets closed at 1 p.m. ET and will remain dark Tuesday for the Christmas holiday.

With time running out, investors are increasingly concerned about the lack of progress in talks over tax hikes and spending cuts set to kick in automatically on Jan. 1, known as the fiscal cliff.

Stocks fell 1% on Friday after a plan by Speaker John Boehner to avert the fiscal cliff failed to get enough support in the House late Thursday. President Obama spoke about the negotiations Friday evening before leaving for the holiday, urging a scaled-back deal that would stop taxes from rising on 98% of Americans -- something both sides say they want.

No one expects progress on a deal Monday, with members of Congress having left Washington for their homes to celebrate the Christmas holiday.

Related: What happens to stocks if we go over fiscal cliff?

But investors are still holding out hope for a temporary fix before the end of the year, said Mark Luschini, chief investment strategist at financial advisory firm Janney Montgomery Scott. Such a deal would only forestall the immediate crisis and delay more difficult decisions until later next month, he added.

"If they can avert the worst, the market will find some support," said Luschini. "Absent that, we will definitely see some pressure on equities."

Fear & Greed Index

Most federal offices and many businesses were closed on Monday. There are no economic reports or corporate news scheduled for release.

European markets ended a holiday-shortened day mixed, with markets in Germany closed. Italy's Mario Monti said this weekend he may consider a second term as prime minister if asked by parties committed to the economic reforms he began over the past 12 months.

Asian markets ended slightly higher, while markets in Japan were closed.

The U.S. dollar rose versus the euro, British pound and Japanese yen. In the bond market, U.S. Treasuries were lower, with the 10-year note yielding 1.78%. Oil prices fell while gold prices edged higher.

First Published: December 24, 2012: 9:41 AM ET

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Italy's Monti may lead again, reforms key

Monti says he may be a candidate for prime minister if asked by reformist parties

LONDON (CNNMoney)

Monti stood down, and parliament was dissolved Friday, after former Prime Minister Silvio Berlusconi withdrew his support for Monti's unelected government of technocrats, appointed a year ago to save Italy from the financial crisis then threatening to tear the eurozone apart.

Speaking on Sunday, Monti said he was more concerned that his policies survived than taking sides in the campaign but added he was ready to offer advice and leadership if a party or coalition came forward with a program he could support.

"I would be much more interested if the Monti agenda - and I apologise if my name appears here - would serve to provide clarity and perhaps help unite the forces," he said at a news conference.

Monti, an economics professor and former European Commissioner, has been credited with restoring confidence in Italy, as well as with its eurozone partners and investors, thanks to his commitment to reduce government borrowing and introduce economic and political reforms.

"While he may not have thrown his hat into the ring, Il Professore has become Il Politico whether he likes it or not," said Nicholas Spiro, managing director of London consulting firm Spiro Sovereign Strategy.

Related: Greece may remain in euro after all

Yields on 10-year Italian government bonds have risen recently on the renewed political instability but remain way below the 7% level Monti inherited a year ago, when he succeeded Berlusconi, who resigned under a cloud of scandal.

In a taste of a bitter election campaign to come, Berlusconi criticized Monti's lack of business experience and said his government had made too many errors

"Last night I had a nightmare, I woke up screaming. I dreamed of a government still with Mario Monti as president of the council," he said, according to the transcript of an interview posted on his website.

Fiscal tightening, weak confidence and tight credit supply have kept Italy deep in recession for the past five quarters. The economy is expected to shrink by about 2.4% this year, and continue to contract in 2013. Unemployment hit 11% in October and is forecast to rise even further next year.

Related: Europe needs new ideas - Vodafone CEO

Opinion polls suggest the center-left Democratic Party led by Pier Luigi Bersani will win the lower house elections, but may need to build a coalition to gain a majority.

Bersani said in a statement on his website that he had no reason to apologize for supporting Monti's program in government and would consider his policy proposals carefully.

Analysts at Nomura said a Bersani-led government including Monti in some capacity was the "best case" likely outcome for financial markets but cautioned that even such a government may struggle to implement reforms, particularly if it failed to win a majority in the upper house.

"Given all this political uncertainty, we see a non-negligible risk that markets will become unsettled over Italy again early in the new year," wrote Alastair Newton in a research note.

-- CNN's Alex Felton contributed to this article

First Published: December 24, 2012: 9:47 AM ET

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