“Five million dollars a day. That’s the cost of Illinois’ unresolved pension crisis.”
-Jay Levine, Channel 2 News (Chicago CBS affiliate) reporter, October 18, 2013
Five million dollars a day being flushed down the toilet because Illinois politicians haven’t tackled the state’s public pension crisis.
By the way, that pension liability now amounts to a worst-in-the-nation $100 billion last I heard.
And here’s what Illinois Senate President John Cullerton said yesterday about the ongoing fiasco. From the Chicago Tribune website this morning:
“People really misunderstand the nature of this whole problem. Quite frankly, I don’t think you can use the word ‘crisis’ to describe it at the state level,” Cullerton said in an interview on WGN-AM radio.
“It’s something we have to deal with, but it’s not something that we’re on the verge of bankruptcy on,” Cullerton said.
The term “Ivory Tower” comes to mind here.
Meanwhile, it’s probably just a matter of time now before a major credit rating agency downgrades the State’s debt yet again due to the inability of the political leadership to deal with the crisis.
According to the Illinois Watchdog website, Illinois has seen its credit downgraded 16 times since 2003, with both Fitch and Standard and Poor’s currently assigning an “A-” rating to its debt.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Levine, Jay. “Lawmakers May Take Up Pension Reform, Gun Control In Veto Session.” CBS Chicago. 18 Oct. 2013. (http://chicago.cbslocal.com/2013/10/18/lawmakers-may-take-up-pension-reform-gun-control-in-veto-session/). 21 Oct. 2013.
“Cullerton: Illinois pension debt not a ‘crisis’” Chicago Tribune. 21 Oct. 2013. (http://www.chicagotribune.com/news/politics/clout/chi-cullerton-pension-debt-not-a-crisis-but-about-lowering-taxes-20131020,0,4245590.story). 21 Oct. 2013.
Yount, Ben. “Illinois can stand as a lesson in government-gone-wild.” Illinois Watchdog. 10 Oct. 2013. (http://watchdog.org/110131/illinois-can-stand-as-a-lesson-in-government-gone-wild/). 21 Oct. 2013.
While it’s “business as usual” for Illinois politicians, two influential groups grow increasingly-wary of the state’s financial situation. Paul Merrion reported on the Crain’s Chicago Business website back on April 22:
Most wealthy Chicago-area investors are optimistic about the global and national economic outlook, but many fear a downturn in the Illinois economy this year, a new survey finds.
The state’s financial well-being has 76 percent of local investors “very concerned,” while only 46 percent feel that way about the prospects for the U.S. economy, according to a survey by Morgan Stanley Smith Barney LLC. A bit more than half (52 percent) said the state’s pension crisis was their top concern, and 58 percent foresee that the Illinois economy will get worse by year-end.
Speaking of the state’s public pension crisis, a pro-Illinois taxpayer group is warning it has the potential to bankrupt the State of Illinois. John Cody reported on the CBS Chicago website Tuesday:
A conservative watchdog group is warning of dark days ahead for the entire state unless Illinois mends it’s financial ways, and soon.
Taxpayers United President Jim Tobin, is essentially blaming Democrats with a two house super-majority for failing to act on pension reform reform.
“Illinois will be the first state to go bankrupt, unless pension reforms are implemented,” said Tobin.
And Tobin’s numbers suggest it’ll be sooner rather than later.
“Yeah, 2015 is about right,” said Tobin.
And yet, state lawmakers continue to fiddle (waste time on more trivial issues) while Illinois burns.
My prediction? Illinois residents should prepare themselves for a combination of more fees, taxes, and belt-tightening from and by the State. Most likely, sooner rather than later.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Merrion, Paul. “Rich Chicagoans fret about Illinois economy: survey.” Crain’s Chicago Business. 22 Apr. 2013. (http://www.chicagobusiness.com/article/20130422/NEWS02/130419726/rich-chicagoans-fret-about-illinois-economy-survey). 3 May 2013.
Cody, John. “Conservative Watch Dog: Pensions Could Bankrupt Illinois By 2015.” CBS Chicago. 30 Apr. 2013. (http://chicago.cbslocal.com/2013/04/30/conservative-watch-dog-pensions-could-bankrupt-illinois-by-2015/). 3 May 2013.
Speaking of France, how is the Socialist-led European state faring these days?
Not so great, it seems.
In fact, a pretty reliable source claims they’re bankrupt.
Graham Ruddick reported on The Telegraph (UK) website Monday:
Michel Sapin made the gaffe in a radio interview, which left French President Francois Hollande battling to undo the potential reputational damage.
“There is a state but it is a totally bankrupt state,” Mr Sapin said. “That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.”
The comments came as President Hollande attempts to improve the image of the French economy after pledging to reduce the country’s deficit by cutting spending by €60bn (£51.5bn) over the next five years and increasing taxes by €20bn.
(Editor’s note: Italics added for emphasis)
As I mentioned earlier tonight, some claim President Obama desires French-style Socialism for the United States.
If France’s economy truly is in shambles, and the U.S. President really wants to emulate them, well- here’s a glimpse of what Americans could expect. From an Investor’s Business Daily editorial yesterday:
Fresh after May 2012′s election, President Francois Hollande wasted no time raising government spending, hiking tax rates to 75% on those above $1.3 million in income, hiring 60,000 bureaucrats, cutting the retirement age for public pensions to 60 and undoing fiscal reforms by his predecessor, Nicolas Sarkozy. During his campaign, Hollande declared himself “the enemy of finance.” France today proves it…
Public debt has soared from 68% of GDP in 2008 to 90% in 2012, joblessness has hit 11%, and GDP growth of its $2.8 trillion economy is projected in 2013 at zero.
Tax hikes have driven the richest taxpayers from the country, making the $43 billion budget hole unlikely to be plugged by Hollande’s $26 billion tax hike. Meanwhile, a squeeze on business creates rising numbers of unemployed, who in turn demand state services.
Time will tell how this will all work out for the Socialists in France. But if history rhymes once again, keep in mind something former British Prime Minister Margaret Thatcher said in a 1976 interview:
Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they’re now trying to control everything by other means. They’re progressively reducing the choice available to ordinary people.
Any of this sound familiar?
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Ruddick, Graham. “France ‘totally bankrupt’, says labour minister Michel Sapin.” The Telegraph. 28 Jan. 2013. (http://www.telegraph.co.uk/finance/financialcrisis/9832845/France-totally-bankrupt-says-labour-minister-Michel-Sapin.html). 30 Jan. 2013.
“Like The Bourbons, France’s Socialists Have Learned Nothing, Forgotten Nothing.” Investor’s Business Daily. 29 Jan. 2013. (http://news.investors.com/ibd-editorials/012913-642388-france-socialist-model-is-same-old-recipe-for-bankruptcy.htm). 30 Jan. 2013.
On the topic of homicides this morning, here’s something I hear being said more these days…
That kind of thing usually doesn’t happen around here.
Or something along those lines.
Consider the following from Gene Blevins and Eric Johnson on Reuters.com this morning:
Four shot dead in ‘nice’ California suburb – police
The bodies of four gunshot victims were found outside a single-family home being used as a boarding house in a normally peaceful suburb of Los Angeles early on Sunday morning, police said…
Shootings are uncommon in the suburb in the San Fernando Valley region, [Los Angeles Police Department spokeswoman Terri Brinkmeyer] said.
“It’s a nice, middle-class neighborhood,” she said.
“Nice.” “Uncommon.” Sound familiar?
Sadly enough, many of us are probably going to hear this stuff being uttered with increasingly regularity as the financial crash draws closer.
As the economy worsens, government budgets will most likely suffer (again) as well, making it difficult to maintain those levels of public safety many of us have grown accustomed to over the years.
In some areas of the country, this situation is already happening. Consider the case of San Bernardino, California. From the CBS Los Angeles website Friday:
City Attorney Tells San Bernardino Residents To ‘Lock Their Doors,’ ‘Load Their Guns’ Because Of Police Downsizing
The city attorney of San Bernardino is under scrutiny for telling residents to “lock their doors and load their guns” during a city council meeting.
The official explained that because the city is bankrupt and slashing public safety budgets people will need to start protecting themselves.
City Attorney Jim Penman said he doesn’t regret what he said…
“Well, if I remember right, I told them to ‘lock their doors and load their guns,’” Penman said.
According to CBS Los Angeles, San Bernardino has cut its police force by about 80 officers as it deals with bankruptcy, and has seen a 50 percent increase in murders in 2012 as compared to last year.
San Bernardino’s experience reminds me of something I wrote all the way back on only the third day of this blog’s existence. From November 24, 2010:
A 25-year veteran of the Toldeo (Ohio) Police Department offered this advice (via FOX’s Toledo affiliate) to residents last year prior to 75 officers being let go by the city:
If I’m an average citizen of Toledo, I definitely would be concerned… Tell people to buy guns. Invest in precious metals – lead, gun powder and brass.
The senior police officer added:
The gang element and the criminal element are getting a little bolder because they know there’s not enough officers out there.
Other law enforcement personnel have shared the same advice with their residents since the onset of the financial crisis.
As the case of San Bernardino shows, similar warnings have been issued since that time, highlighting the importance of the individual taking responsibility for their own safety.
I’ll leave you with what I left those earliest of readers back in November 2010:
This last thought about the individual being ultimately responsible for their own personal protection is hammered home by John S. Farnam, a long-time defensive firearms instructor and deputy sheriff (training officer) in the Park County, Colorado, Sheriff’s Office. In The Farnam Method of Defensive Shotgun and Rifle Shooting, the founder and president of Defense Training International wrote:
It is said by enlightened social scientists, “If it rained twenty-dollar bills every Monday morning, there would still be people begging for their dinner ever Monday evening!” The same is true with criminals. No matter how “civilized” or indulgent our society becomes, there will always be criminals. And, the more foolishly dependent we all become upon governmental institutions as the only means of preserving civil order, the more dubious our continued existence becomes, and the more quickly order will disintegrate when our societal underpinnings are crippled or even imperiled. When citizens become additively dependent on an eleemosynary and paternal government to do for them what they could be, and, of right, ought to be, doing for themselves, that civilization’s days are surely numbered. Never forget, regardless of how politically incorrect it may sound to the uninformed, your personal security is always your responsibility, and yours alone!
“Your personal security is always your responsibility, and yours alone!”
Blevins, Gene and Eric Johnson. “Four shot dead in “nice” California suburb- police.” Reuters. 3 Dec. 2012. (http://www.reuters.com/article/2012/12/03/us-usa-crime-shooting-idUSBRE8B20AY20121203). 3 Dec. 2012.
“City Attorney Tells San Bernardino Residents To ‘Lock Their Doors,’ ‘Load Their Guns’ Because Of Police Downsizing.” CBS Los Angeles. 30 Nov. 2012. (http://losangeles.cbslocal.com/2012/11/30/city-attorney-tells-san-bernardino-residents-to-lock-their-doors-load-their-guns-because-of-police-downsizing/). 3 Dec. 2012.
As I’ve said before, once in a while I hear chatter about Chicago being on the path to becoming the next Detroit. Not the hub of America’s auto industry that “old” Detroit once was, but rather “this” Detroit:
“Scary Movie 4 – Detroit: Before & After the Attack”
I guess conditions in the “Motor City” are getting so bad one Michigan state senator has gone so far as to say the legislature is going to have to “seriously consider dissolving” the city. From The Detroit News website this morning:
State Sen. Rick Jones has a solution for fixing Detroit’s ongoing political and financial problems: Get rid of the city.
“At some point we’re going to have to seriously consider dissolving the City of Detroit,” Jones told Insider.
You read that right.
Jones, R-Grand Ledge, is proposing the Legislature, which has the power to establish municipalities, should make the city part of unincorporated Wayne County.
Jones was unclear about what good it would to do to turn the city and its services for 700,000 residents over to a county with it’s owns financial and political problems.
But he said outstate lawmakers like himself are growing tired of the City Council delaying implementation of the financial consent agreement state and city leaders signed in April, inching perilously closer to payless paydays and bankruptcy.
(Editor’s note: Italics added for emphasis)
Detroit’s finances appear pretty bleak. According to Reuters last night, not only did Moody’s Investors Service lower the city’s debt ratings deeper in the junk category Wednesday, but:
Moody’s also placed a negative outlook on the lowered ratings, citing in part “the rising possibility that the city could file for bankruptcy or default on an obligation over the next 12 to 24 months.”
(Editor’s note: Italics added for emphasis)
Here’s hoping Detroit can find a way out of their serious financial and political mess.
And that chatter about Chicago becoming the next Detroit doesn’t pan out.
“Political insider: Senator says to dissolve Detroit if it can’t fix its problems.” The Detroit News. 29 Nov. 2012. (http://www.detroitnews.com/article/20121129/POLITICS02/211290357/Political-insider?odyssey=mod|newswell|text|FRONTPAGE|s). 29 Nov. 2012.
“Moody’s cuts Detroit debt ratings deeper into junk.” Reuters. 28 Nov. 2012. (http://www.reuters.com/article/2012/11/28/detroit-moodys-downgrade-idUSL1E8MSDCJ20121128). 29 Nov. 2012.
For months now I’ve been saying to those people closest to me that Barack Obama will be reelected as President of the United States of America. Granted, last week I did mention to my girlfriend that Mitt Romney might have a shot at the White House based on analysis done by FOX News and Glenn Beck’s The Blaze TV (these two media outlets need to win back any confidence I had in them as a result). Now that Election Day has come and gone, here are some thoughts about the whole spectacle.
The main reason I kept saying Obama would get reelected as President was that the votes were already “bought and paid for.” A lot of Americans receive government benefits (49.1 percent of Americans lived in a household where at least one member of the family received such benefits in 2011, according to the Wall Street Journal earlier this year). The Obama administration has demonstrated these past four years that it’s willing to provide these benefits (part ideology, part political strategy). If you are someone receiving this, why would you endanger the status quo by voting for someone else who might take it away as part of some publicized push for smaller government living within its means? Where could all this lead to? Full-fledged dependency and eventual bondage, if one buys into the Cycle of the Body Politic.
Young American voters could be more “left-leaning” than their predecessors. How left? Well, “socialist” might not be too far off the mark if one subscribes to the findings of a Pew Research Center survey from December 2011. I wrote back on September 27:
You see, not only am I aware that a good number of Americans aren’t put-off by the idea of socialism anymore, but a recent poll even showed a majority of young Americans aged 18-29 have a positive view of it.
From the Pew Research Center website back on December 28, 2011:
Socialism is a negative for most Americans, but certainly not all. Six-in-ten (60%) say they have a negative reaction to the word; 31% have a positive reaction…
Fully nine-in-ten conservative Republicans (90%) view socialism negatively, while nearly six-in-ten liberal Democrats (59%) react positively.
The poll of 1,521 adults conducted back in early December 2011 revealed that among the 18-29 age group, 49 percent had a positive view of socialism as compared to 43 percent having a negative view.
Is Obama and his White House socialist? I don’t know. Are they “left-leaning?” The available evidence suggests so. Which could be why a lot of young American voters are drawn to the Democrats.
Public sector unions obviously played a big role in this election. I understand that such groups work toward the benefit of their members. However, does such activity work contrary to the common good, destabilizing increasingly financially-challenged public agencies, as critics suggest? Plenty of insolvent government organizations could be available for study shortly.
While incumbent politicians can be more difficult to dislodge from office, President Obama retained the White House despite a dismal economic record in his first term. Measures of (un)employment, food stamps, poverty, budget deficits, national debt, for example, grew increasingly worse over the past four years. I know, what about those “5 million jobs created” the Democrats kept touting during the campaign? Problem is, a closer look at what was “created” reveals a lot of low-paying positions. Burger flippers won’t be spearheading a U.S. economic recovery anytime soon. Perhaps Americans aren’t voting based on their wallets as much anymore. Or perhaps their pocketbooks haven’t been hit hard enough. That may be just a matter of time.
The past four years confirmed for many Americans the transformation of the news media from watchdog journalists to unofficial mouthpieces of the Democratic Party (the press being merely a mouthpiece for any party is bad). I have some journalism experience in my background, and my training included an emphasis on unbiased reporting. Being exposed to the amount of news material I am on a daily basis, it’s all too obvious to me that either that training is no longer given, a refresher course is desperately needed, or today’s journalists just don’t give a damn about it anymore. Sad. The way I look at it, if reporters not assigned to pen an op-ed/column feel the need to express the political creature in them, then get a personal blog! And let’s exchange links. Otherwise, do your country a huge favor and once again occupy the role of the “Fourth Estate”- an independent press. Continue on as the “American Pravda” and suffer the inevitable consequences.
Since Chicago/Cook County/Illinois Democrats play a significant role in running the country, one need only look at where they originate from to get an idea of where they might be taking the country these next four years. Anyone who spends enough time on this blog reading those posts written for my local audience knows exactly where that is:
Into the ground.
While Chicago and Cook County have significant financial woes, the State of Illinois is essentially bankrupt. Too many benefits, too much spending, too little cutbacks, too much borrowing, and now the fee and tax hikes on residents and businesses. It’s going to get ugly in the “Land of Lincoln” real fast. California and Illinois are the two U.S. states competing with each other to go under first as the financial crisis worsens, according to some very smart people. Yet, don’t expect any regime change in “Madiganistan” any time soon. As I wrote back on March 21:
As a result of this redistricting, Democrats could very likely control the state legislature in Illinois for a number of years. Monique Garcia, Alissa Groeninger, and Ray Long wrote on the Chicago Tribune website last night:
Even before unofficial results rolled in, some sitting Republican lawmakers were bound to lose in DuPage County, casualties of the Democratic-drawn state legislative districts. The map is tilted so heavily toward Democrats that the party led by House Speaker Michael Madigan, the Illinois Democratic chairman, is all but ensured November general election victories that could set it on a course to control the General Assembly for the next decade.
And from a Chicago Tribune editorial piece this morning:
Democrats had virtually locked in their Springfield majorities before the first voters cast the first early ballots on Oct. 22. More than half of these legislative races weren’t even contested by both major parties. And while some of the new district boundaries gave Republicans tremendous advantage, the aggregate effect was to keep Illinois and its 12.8 million citizens under one-party rule.
Voters evidently like it that way.
Yes they do. Especially as votes were also “bought and paid for” here in the ‘Stan.
Before this post is misconstrued as being merely some Obama/Democrat-bashing piece, regular readers of the blog know that I foresee a U.S. financial crash at the end of all this “kicking the can down the road.” That being said, at this point in the game, I don’t think it really matters anymore whether the Democrats or Republicans are in charge as it concerns where our economy and larger financial system is eventually heading. Enough damage has already been done (think of the Titanic and her compartments being punctured just enough to guarantee her inevitable demise) that America is fast-approaching a tipping point as both major national political parties make matters worse by refusing to scale back the obscene amounts of government spending when given the chance. If you think about it, when it comes to fiscal policy, both parties have shown to be no better than a two-headed monster. Barack Obama’s economic polices from 2008-2012, in general, were really just an extension of George W. Bush’s economic policies. Spending, stimulus, government intervention, you get the picture. Rather than sit down, have a mature conversation with the nation about the unsustainable track we’re on concerning our finances, and stop the spending, both the Democrats and Republicans continue to pander to Main Street’s desire for more stuff, more benefits, more borrowing, more debt. This time around, Barack Obama and the Democrats won. In the longer run, everyone looks to lose.
In the meantime, congratulations Mr. President and the Democratic Party on your Election Day victory.
Izzo, Phil. “Number of the Week: Half of U.S. Lives in Household Getting Benefits.” Real Time Economics. 26 May 2012. (http://blogs.wsj.com/economics/2012/05/26/number-of-the-week-half-of-u-s-lives-in-household-getting-benefits/?KEYWORDS=number+of+the+week). 7 Nov. 2012.
“Illinois Democrats and their realm.” Chicago Tribune. 7 Nov. 2012. (http://www.chicagotribune.com/news/opinion/editorials/ct-edit-legis-1107-20121107,0,2900759.story). 7 Nov. 2012.
Like Chicago, I blog a lot about Illinois because I’m concerned about the direction the state is heading. Especially when it comes to finances.
Back on June 22, I talked about the state’s unpaid bills, which according to the Chicago Tribune’s Monique Garcia on May 28 were expected to total $8.5 billion by the end of June.
Thankfully, there’s recently been some good news in this area. According to the July edition of Comptroller’s Quarterly (a publication from the office of Illinois Comptroller Judy Baar Topinka):
As Illinois reached the end of the fiscal year, persistent payment delays continued despite significant revenue increases. In fact, the state moved into fiscal year 2013- following the first full year of state tax increases – with an estimated $7.5 to $8 billion in unpaid obligations, slightly lower than the $8.5 billion total of the last two fiscal years.
(Editor’s note: Italics added for emphasis)
$8.5 billion down to $7.5 to $8 billion in unpaid bills. An improvement- yes. But not by a whole lot unfortunately.
After the report from the Illinois Comptroller came out Reuters reminded everyone of the precarious financial position “The Land of Lincoln” remains in. Joan Gralla wrote on July 16:
Illinois faces some of the worst fiscal problems in the United States.
Standard & Poor’s Ratings Services gave it the second-lowest general obligation rating of the states it rates, ‘A-plus’, and has had it on a negative outlook since January 2011. Of all the states S&P rates, California has the lowest rating, ‘A-minus’ with a positive outlook.
As I also noted back on June 22, the State of Illinois had a total deficit of $43.8 billion and an unfunded pension liability of nearly $83 billion at the end of fiscal year 2011.
I routinely hear Illinois mentioned as one of two states- the other being California- most likely to go bankrupt down the road.
You can read the latest issue of Comptroller’s Quarterly on the Comptroller’s webpage here.
Gralla, Joan. “Illinois’s unpaid bills backlog still big despite revenue rise” Reuters. 16 July 2012. (http://www.reuters.com/article/2012/07/16/us-usa-illinois-bills-idUSBRE86F1EN20120716). 8 Aug. 2012.
Stockton, Mammoth Lakes, now San Bernardino.
Three California cities that have filed for bankruptcy in less than two weeks.
Is the prediction by Meredith Whitney, aka the “Diva of Doom,” about a wave of municipal defaults finally coming to fruition?
From NBC Los Angeles on the MSNBC website this morning:
San Bernardino became the third California city in less than two weeks to file municipal bankruptcy protection Tuesday night when the city council voted to make the move in the face of a $45-million budget shortfall…
Officials in Stockton said their June decision to seek federal bankruptcy protection was the “only choice” for the city that was unable to reach finance agreements with creditors to address a $26 million budget shortfall…
On July 4, Mammoth Lakes sought bankruptcy protection from a $43 million court judgment, according to Bloomberg News.
NBC Los Angeles staff pointed out:
In the six decades since Congress created bankruptcy protection for cities, fewer than 500 municipal bankruptcy petitions have been filed, according to the United States Courts website.
As much as I hate to say it, it’s my belief there will be a lot more local governments filing for bankruptcy before this ongoing economic mess is all sorted out. And Whitney will eventually be vindicated about the wave of defaults (her timing was just off). I come across stories about distressed municipalities on a daily basis out in cyberspace. The city that’s grabbing the headlines the last couple of days is Scranton, Pennsylvania. From Perry Chiaramonte on the FOX News website Monday:
Employees of a Pennsylvania city, who have all seen their salaries cut to minimum wage as the mayor grapples with budget problems, are hoping a judge restores their paychecks in full.
Scranton Mayor Chris Doherty cut everyone’s pay — including his own — on Friday, saying the state’s sixth-largest city is broke because the City Council blocked his proposed tax increase. Doherty, a Democrat, warned nearly 400 police officers, firefighters and public works employees about his doomsday plan, prompting a Lackawanna County judge to order the city to pay full wages to all employees, citing that it is a violation of their contracts. Hours later, the payday envelopes went out, and, despite the judge’s order, they were light…
The city of Scranton has battled budget woes for years, but the problems reached a boiling point after the City Council blocked Doherty’s plan to raise taxes to cover a $16.8 million shortfall, opting instead to borrow money to cover the budget gap.
More to come (I’m sure)…
“San Bernardino becomes 3rd Calif. city in 2 weeks to file for bankruptcy protection.” MSNBC. 11 July 2012. (http://usnews.msnbc.msn.com/_news/2012/07/11/12675262-san-bernardino-becomes-3rd-calif-city-in-2-weeks-to-file-for-bankruptcy-protection?lite). 11 July 2012.
Chiaramonte, Perry. “Pennsylvania city workers to take mayor to court over across-the-board minimum wage salaries.” FOX News. 9 July 2012. (http://www.foxnews.com/politics/2012/07/09/political-statemate-leads-to-city-workers-salaries-cut-down-to-minimum-wage-in/). 11 July 2012.
We have an emergency, a fiscal emergency. Our state was careening toward bankruptcy, fiscal insolvency. Even in the last couple of months, the situation got seriously more dire. So the governor has to act at the moment. And that’s what I did.
-Illinois Governor Pat Quinn, January 12, 2011, in defense of signing off on a 67 percent personal income tax hike on Illinois residents (Chicago Tribune, January 12, 2011)
The fiscal emergency in Illinois remains.
So much so that the billions of dollars worth of unpaid bills Illinois state government is responsible for could soon exceed the $8 billion estimated back in January 2011, when massive personal and corporate income tax hikes went into effect in the “Land of Lincoln.” Monique Garcia wrote on the Chicago Tribune website yesterday:
Sixteen months ago, Democrats pushed through the largest income tax increase in Illinois history, an unpopular decision that was billed as a crucial step to put state government on the road to financial recovery.
Yet last week lawmakers made deep cuts in health care for the poor, and this week they face tough votes to raise the cigarette tax, strip away public worker pension benefits and slice spending on social services. Despite all that, the giant pile of unpaid bills that has loomed over state government for years is expected to keep growing…
Even if Medicaid cuts and pension reforms are put in place, the state’s unpaid bills are expected to total $8.5 billion come June 30. The new state budget isn’t expected to shave much off that tab. The pile of bills was an estimated $8 billion when the income tax hike was approved.
(Editor’s note: Italics added for emphasis)
Illinois taxpayers might be wondering how something like this could happen. Garcia explained:
Pension payments continue to increase dramatically each year. The same is true for health care costs as more people seek coverage during a down economy. And that stack of bills keeps rolling over from one year to the next partly because lawmakers declined to go along with Gov. Pat Quinn’s request to use some of the income tax windfall to borrow to pay it off.
The rising costs have created what Quinn calls a “squeeze” on the rest of the state budget.
It’s not only Illinois’ stack of unpaid bills that is growing. Garcia pointed out:
Meanwhile, the retirement system’s $83 billion unfunded liability continues to grow because of early retirement incentives, pension sweeteners and skipped payments orchestrated by Democrats and Republican.
(Editor’s note: Italics added for emphasis)
Thank you for bringing this to your readers’ attention, Chicago Tribune.
$8.5 billion. $83 billion. Like the former U.S. Senator from Illinois Everett Dirksen supposedly said:
A billion here, a billion there, and pretty soon you’re talking about real money.
Real money. Real fiscal crisis.
Garcia, Monique. “Record tax hike isn’t fixing Illinois’ problems.” Chicago Tribune. 28 May 2012. (http://articles.chicagotribune.com/2012-05-28/news/ct-met-illinois-budget-20120528_1_pension-payments-income-tax-tax-hike). 29 May. 2012.
Student loans. Sure- they suck. I had them. I wouldn’t have been able to attend college and graduate school without them (Dad: “You’re on your own once you graduate high school.”). And I finally got done paying them off recently.
These days, student loan debt is getting a lot of media exposure. Even CNBC talked about the problem this morning. Kelly Evans wrote on the CNBC website:
Here’s what we do know about student loan debt: it’s roughly $1 trillion in size, greater than either auto or credit-card debt and second only to mortgage debt in the U.S.
Borrowers in their 30s today owe $28,500, on average. The debt burden has soared just as — and partly because — the recession hit, so younger graduates carrying the highest balances are hit with the double whammy of a weak job market (that still isn’t showing any sign of rapid improvement).
And this all comes as globalization and technological change have upended once-reliable career paths, wiped out many mid-level professional jobs and leave low-paying fields in health, food and beverage services, and retail as among the fastest growing job markets over the next decade.
Oh, and consider that student loan debt remains one of the most difficult types to forgive or discharge in bankruptcy, in part because the federal government (i.e. taxpayers) made or guaranteed 80 percent of all outstanding student loan debt as of last year. And finally, that once loans in deferral or forbearance are excluded, the delinquency rate on student loan debt was an estimated 27 percent as of the third quarter of 2011, according to a study by the New York Fed.
Worried? Americans should be.
(Editor’s note: Italics added for emphasis)
In an economy that’s powered by consumer spending, too much student loan debt cripples consumption by these younger Americans.
And now, for one or reason or another, the calls are growing for a student loan bailout or some kind of relief. And Democrats in the U.S. Senate are responding. Alan Fram of the Associated Press wrote this morning:
Senate Democrats are ready with an election-year bill preventing interest rates from rising for millions of college students with federal loans. Republicans are already balking at the way Democrats would cover its $5.9 billion price tag: boosting payroll taxes on the owners of some privately held firms.
Democrats unveiled their bill late Tuesday, a measure that would prevent today’s 3.4 percent interest rates on subsidized Stafford loans for low- and middle-income students from doubling automatically on July 1. The interest rate freeze, which would help 7.4 million people, would last for a year…
Republicans trained their fire on Democrats’ plan to finance the bill by making it harder for owners of smaller, privately owned companies called S corporations to avoid paying Social Security and Medicare payroll taxes on some of their income.
The proposal would apply to such companies with incomes exceeding $250,000 and whose revenues come mostly from the work of three or fewer owners. The higher payroll taxes would also be required for some law firms, doctors’ practices and other professional services partnerships.
(Editor’s notes: Italics added for emphasis)
According to Fram, Senate Democratic aides said the legislation would pay for itself with around $6 billion in extra Medicare taxes collected from these private companies over the next decade.
I think I understand what the Democrats are trying to accomplish here:
• Continue their election year political strategy of populism
• Re-energize young Americans to support Barack Obama’s re-election bid in November
• Tap into some much-needed funds for Social Security and Medicare
• Actually help these indebted former students
On the flip-side, I anticipate the legislation might not only alienate even more small business owners from the Obama administration and Democratic Party, but- if signed into law- could make them reconsider hiring additional personnel down the road due to these new payroll taxes. With Tax Doomsday already fast-approaching, such a tax hit is bound to fuel even more uncertainty among small business owners going forward.
As small businesses have generated 65 percent of net new jobs over the past 17 years, young Americans might have to get used to those “low-paying fields in health, food and beverage services, and retail” for some time longer.
Evans, Kelly. “Student Loans: The Next Bailout?” CNBC. 25 Apr. 2012. (http://www.cnbc.com/id/47171658). 25 Apr. 2012.
Fram, Alan. “Senate Dems ready bill freezing student loan costs.” Associated Press. 25 Apr. 2012. (http://www.google.com/hostednews/ap/article/ALeqM5i9q8K9wbLi6abkUrpA3py8xODJ2A?docId=91f7fd59392946d8b7206a044381f4c3). 25 Apr. 2012.
We’re in a debt crisis. Eurozone countries have way too much debt. We have gorged on debt. We are living beyond out means. And after 10 years of booming economic times- it is now payback time. We are paying back our credit cards, and that will prove very painful and costly…
Well, the U.S. is doing terribly well at the moment. However, clearly if the Eurozone has a really bad time of it this year, which it could well do, then America will not escape unscathed.
-Louise Cooper, Senior Financial Analyst at BGC Partners, talking to Steve Kroft in a recent interview that appeared on the CBS show 60 Minutes this past Sunday. Cooper has been called “The Downturn Diva” by the British press.
“An Imperfect Union: Europe’s debt crisis”
CBS News Video
Last night I blogged about Jim Rogers and his appearance on the CNBC show Fast Money last week. It turns out another “crash prophet,” Peter Schiff, dropped in on the show last night- with some dire warnings for viewers. The CEO and Chief Global Strategist of Euro Pacific Capital talked about the following in the seven minute segment:
• Federal Reserve money printing is enabling a government spending bubble and preventing the U.S. economy from restructuring
• A big drop in the bond market is coming, and the Fed didn’t make the banks stress test for this because they would fail
• Ben Bernanke and the Fed are keeping interest rates artificially low to prop up the housing market
• Equity markets appear to be gaining value because the U.S. dollar is losing value- “This is not about the stock market going up. It isn’t going up. That’s a delusion created by the Fed.”
• Beware Ben Bernanke and the Federal Reserve- “The Fed is the biggest enemy of this economy. In fact, Ben Bernanke, as far as I’m concerned, he’s public enemy number one.”
• Economic pain is coming, and it will be worse than in 2008-2009- “Oh, it is going to be. Absolutely going to be. Because the Fed is creating more damage now than it did when it blew up the housing bubble. The problem is going to be eventually, the world is going to figure out that the government is lying about inflation. Inflation is a much bigger problem than the CPI numbers show… Once the world realizes that inflation is running out of control in the U.S., and the Fed will do nothing about it. Because the minute the Fed takes this punch bowl away, the minute it raises interest rates to cut off the inflation, the banks are going to fail, the federal government is going to have to declare bankruptcy, it’s not going to be able to pay the interest on the national debt. This whole phony economy the Fed has constructed with cheap money is going to come toppling down. But the reality is we have to kill this phony economy because it’s unsustainable. We need to replace it with a viable one but unfortunately to do that there’s a lot of short-term pain because we’ve got to unwind this bubble, and the Fed doesn’t want that to happen. The Fed is letting our politicians off the hook. It’s trying to postpone our day of reckoning until after the next election. But there is always another election coming. We have got to deal with these problems. We can’t keep making them worse. That’s what we did when the stock market bubble burst. And we created the real estate bubble. But we learn nothing from our mistakes, all we do is repeat them but on a grander scale.”
At this point in the segment, someone in the Fast Money crew joked:
Sounds like Pete is running for office again [multiple laughs]
You know what? It sounds like 2007 again when a small number of financial types like Schiff warned about the coming financial carnage but the rest of the financial community ignored and/or ridiculed them.
You can watch this informative, sobering video segment on the CNBC website here.
(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
It seems to me it’s physically, humanly impossible for the U.S. to ever pay off its debt. They can roll it over and continue to play the charade, but the U.S. is bankrupt.
-Jim Rogers, investor and chairman of Rogers Holdings, in a CNBC interview Sunday
The 2008 crash vindicated the theory of the Austrian school economists, who had predicted precisely such a credit crunch in remarkably specific terms. Yet the official response, even from notionally Centre-Right governments, was overwhelmingly Keynesian…
It’s paradoxical: at the moment they have most demonstrably lost the argument, Keynesians have assumed almost total control of public policy. Only when we see the long-term price of our current policies – statism, sclerosis, inflation and bankruptcy – will their ideological grip finally be loosened.
Keynes was famously nonchalant about this drawback. “In the long run,” he observed, “we are all dead”. But this isn’t true. Or at least, it isn’t true from the point of view of those of us who, unlike Keynes, have children.
-Daniel Hannan, British legislator, journalist, and author of Why American Must Not Follow Europe, in the online edition of The Telegraph (UK) last Friday
Yesterday I discussed the potential impact on the United States should Greece and Portugal default on their debt. As most of you might already know, these two European states belong to a group of nations referred to as the “PIIGS.” From Investopedia.com:
An acronym used to refer to the five Eurozone nations, which were considered weaker economically following the financial crisis: Portugal, Italy, Ireland, Greece and Spain.
And one veteran investor who correctly-called the 2008 commodities pull-back thinks each of the PIIGS will soon be going bankrupt. From Lee Brodie on the CNBC website yesterday:
Will the EU ever corner the problem?
According to strategic investor Dennis Gartman the short answer is ‘No.’ He tells Fast Money it ain’t gonna’ happen.
Although he concedes problems will probably be contained in the short-term – in the long-term he doesn’t see the situation playing out terribly well, at all.
In fact he tells us that he expects “all the PIIGS will go bankrupt.” And not 10 or 20 years from now. Gartman says prepare for it to start happening “sometime over the next year and a half. But they’re all going to go.”
Brodie, Lee. “Dennis Gartman: PIIGS Will Go Bankrupt Within 18 Months.” CNBC. 6 July 2011. (http://www.cnbc.com/id/43656127). 7 July 2011.
Christopher E. Hill, Editor
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