Bankruptcy

Jim Rogers ‘Still Waiting’ For Gold Buying Opporunity, ‘My Positions Are In Asia’

Daniela Cambone of Kitco News recently spoke to well-known investor, author, and financial commentator Jim Rogers. The former investing partner of George Soros in the legendary Quantum Fund shared the following with Kitco News viewers on April 30:

I’m bullish on the Chinese market, that’s my largest country. My largest stock positions are in Asia- China, Japan, Russia is becoming bigger and bigger. So my positions are in Asia. China is going to have some problems eventually. Looks like a bubble may be developing in its stock market, and if that happens obviously it will pop someday. You’re going to see some more real estate bankruptcies in China. There’s a lot of debt build up-in China. But at the moment I’m still there. I even bought more last week

I’ve mentioned China. I mentioned Japan. Russia- I’ll probably buy more Russia today. If I weren’t talking to you I might be buying Russia right now. These are the sorts of things where I’m looking and am putting more money.

(Editor’s note: Bold added for emphasis)


“Gold Buying Opportunity Has Still Not Come – Jim Rogers | Kitco News”
YouTube Video

As Kitco deals in precious metals, it was only natural that the topic of gold came up in the discussion. Singapore-based Rogers had this to say about now being a buying opportunity for the yellow metal:

Well, the opportunity has not come as far as I’m concerned. I’m still waiting.

(Editor’s note: Bold added for emphasis)

The Chairman of Rogers Holding started to say “Sometime in the next year” before offering this up to viewers:

I have no idea. I’m very bad at market timing.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; 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.)

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Chicago To Be Run By Emergency Financial Control Board Within 2 Years?

Last Wednesday, I reminded Survival And Prosperity readers (local ones in particular) that Chicago- upon reelecting Rahm Emanuel as Mayor- remains in serious financial trouble. From that post:

As Rahm Emanuel enters his second term as Mayor of Chicago, I feel that proverbial brick wall is still fast-approaching.

Perhaps the best Chicagoans can hope for at this point is a controlled crash landing.

I know one thing. If I were still living in the city, I’d be preparing for the coming carnage…

Some readers might feel I was being a little too “sensational” with that statement. Therefore, I’d like to offer up the following for your consideration. Reuters’ Megan Davies and Karen Pierog reported on April 8:

Chicago has not seen the population losses Detroit did and its business and commercial real estate markets remain healthy, but its current circumstances are more dire than any other major American city today, with aggregate debt of $21.4 billion, up 60 percent since 2004.

Although Chicago’s situation isn’t bad enough yet to warrant a bankruptcy filing, that threat is out there if it fails to tackle its problems.

“People say Chicago’s not Detroit,” said Tom Metzold, a senior portfolio advisor at investment manager Eaton Vance. “Not right now. Chicago is Detroit ten years from now. I don’t care how economically strong your economy is. They don’t have a printing press. You can only tax so much.”

Metzold estimated the odds of a Chapter 9 bankruptcy in the next five years are “virtually zero” but said in the next 10 years that could rise to 25 percent if it fails to act

(Editor’s note: Bold added for emphasis)

In case readers are wondering, Metzold’s s “Street cred” includes serving as VP and Co-Director of Municipal Investments at Eaton Vance (one of the oldest investment management firms in the U.S.- established 1924), and as its Portfolio Manager since 1991.

Not as “optimistic” about Chicago’s financial future is Joe Mysak, Editor of Bloomberg Brief. He warned in an April 8 commentary:

I’m not a betting man. If I were, I’d bet that Chicago is going to be run by an Emergency Financial Control Board, or something like it, within two years, the same as New York City back in 1975 (and until 1986)…

(Editor’s note: Bold added for emphasis)

Mysak, who’s been covering the municipal bond market since 1981, pointed out the city’s abysmal Moody’s credit rating (“one step from the basement of investment grade”) and wrote:

So a cut to junk may well be in the cards, and with it diminished and eventually lack of access to capital. Chicago has already creatively used, and some would say abused, the municipal market to subsidize city operations…

When the banks no longer want to lend to Chicago is presumably when the state of Illinois would come in, offering cash, loan guarantees, intercession with the federal government and whatever else the city needs in exchange for external management via an Emergency Financial Control Board…

(Editor’s note: Bold added for emphasis)

The author of the Encyclopedia of Municipal Bonds signed-off with:

Two years. That’s how long I give the city of Chicago. Good luck, Rahm.

Good luck Chicago…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Davies, Megan and Pierog, Karen. “Chicago Mayor Rahm Emanuel confronts fiscal nightmare as he begins second term.” Reuters. 8 Apr. 2015. (http://www.rawstory.com/rs/2015/04/chicago-mayor-rahm-emanuel-confronts-fiscal-nightmare-as-he-begins-second-term/). 12 Apr. 2015.

Mysak, Joe. “Next Stop for Chicago: Emergency Financial Control Board.” Bloomberg Brief. 8 Apr. 2015. (http://newsletters.briefs.bloomberg.com/document/3fz176niqylzjr6oax/commentary). 12 Apr. 2015.

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Afterthoughts: Chicago’s 2015 Mayoral Election

In case you hadn’t heard, Rahm Emanuel remains Mayor of Chicago after defeating Jesús “Chuy” García yesterday in a run-off election 55.7 percent to 44.3 percent with 98.7% of precincts reporting.

Here are some of my thoughts regarding the 2015 mayoral election in Chicago:

1. The fact that “Chuy,” a Cook County commissioner who was born in Durango, Mexico, forced Mayor Emanuel into a first-ever run-off election for the position signaled two things. One, a number of Chicago voters aren’t too happy with the way the “Rahmfather” is running the city. And two, Chicago’s Hispanics continue to flex their growing political muscle. Natasha Korecki reported on the Chicago Sun-Times website back on March 15:

According to census data from 2010, Hispanics make up just shy of 29 percent of the city’s population- but they account for only 13 to 15 percent of the electorate. (Garcia’s campaign says that number was at about 16 percent on Feb. 24.)

Should trends hold, I envision Latinos making significant gains with that percentage. Korecki added:

“The Hispanic population is the fastest-growing segment of the early-childhood population,” says Chicago City Clerk Susana Mendoza, an Emanuel supporter. “Latinos make up 47 percent of students in CPS,. It’s a very significant population…

Last December, the U.S. Census Bureau forecasted that Hispanics will comprise 25 percent of the U.S. population within the next 30 years- up from approximately 17 percent right now.

At risk of sounding like “Captain Obvious” here, I’m thinking Chicago’s future will be a much more Latino one. Particularly as city government is concerned.

(Editor’s note: Back in the fall of 1988 I told my high school Spanish teacher I wanted to learn the language because I thought it would “come in handy” someday. Has it ever.)

2. After being forced into a run-off, the Rahm camp realized he’s rubbed a number of Chicagoans the wrong way. Which led to commercials like this:


“New Rahm Emanuel Ad: ‘I Can Rub People The Wrong Way’”
YouTube Video

So now that he’s won the run-off, what’s Mayor Emanuel “tune” now? Rick Pearson and Bill Ruthhart reported on the Chicago Tribune website this morning:

After finishing a salad and bowl of matzo ball soup, Emanuel was asked what he learned from the runoff and whether he would, in fact, be a more inclusive mayor in his second term.

Emanuel responded by confidently saying the feedback he’d gotten from voters during the campaign would serve as his “North Star.” Asked by the Tribune if that meant he would take a different approach to running the city, Emanuel instead deflected the question by telling the reporter: “You’ll evaluate that, and my guess is you’ll tell me on a 24-hour basis.”

Pressed again on whether he had heard the voters and would change his often brusque style, Emanuel responded with just one word:

“Yeah.”

(Editor’s note: Bold added for emphasis)

Yeah. I don’t know about you, but the impression I get from that response is- something tells me old habits might be particularly hard to break with this one.

I can’t help but wonder if dead fish aren’t already on their way…

3. Chicago’s “financial reckoning day” is still fast approaching. And I don’t think it matters who’s in charge, as I believe we’re too far along in the deterioration and the required political will to do something about it just isn’t there. Still. I read a “funny” comment on the popular Chicago police blog Second City Cop earlier today. From a Tuesday night post:

Anonymous said…

Blah blah blah. The city will not go.bankrupt. We are third in the country for tourists, we have numerous international and national companies world headquarters plus we have a 100s of millions in tif funds. Commie chuy was a police hater that had no plan for this city. Rahm ain’t no picnic either but next to chuy he was a genius.

Now consider what the National Journal’s John B. Judis reported on March 30:

Chicago is facing a truly grave set of problems– problems that are essentially more extreme versions of the challenges confronting city governments across the country.

The quandaries begin with Chicago’s dramatic social divide. To an even greater extent than is the case in, say, New York or Philadelphia, Chicago has become two entirely separate cities. One is a bustling metropolis that includes the Loop, Michigan Avenue’s Magnificent Mile, and the Gold Coast, as well as the city’s well-to-do, working-class, and upwardly mobile immigrant neighborhoods. The other Chicago consists of impoverished neighborhoods on the far South and West Sides, primarily populated by African-Americans. These places have remained beyond the reach of the city’s recovery from the Great Recession.

Meanwhile, even as it grapples with this extreme gap, Chicago is suffering from a severe fiscal crisis. Like plenty of other municipalities, Chicago lacks the revenue to pay its bills, particularly its pension obligations to city workers. According to a 2013 Pew report, 61 other U.S. cities face similar difficulties, but Chicago’s situation is one of the worst. “Voters must realize we are facing the greatest economic crisis since the Great Depression,” says Roosevelt University’s Paul Green, the doyen of Chicago political experts. “If something doesn’t happen, the city is beyond the abyss.”

Those problems aren’t really Emanuel’s fault, but his efforts to fix them over the past four years haven’t yielded especially good results. For his part, Garcia—who has been at the forefront of Latino politics in Chicago for four decades and who has a history of bucking Chicago’s political establishment—has run a campaign long on general populist criticism of the incumbent, but short on credible ideas about what he would do differently.

All of which means that this election won’t yield much of a mandate for dramatic solutions to Chicago’s twin crises

(Editor’s note: Bold added for emphasis)

Translated: Probably doesn’t matter who won the election, because Chicago looks to “lose” with either at the helm.

Once again, the economic situation appears too far gone at this point, and the political will to truly get the city’s finances back on track just isn’t there.

I hope Judis is wrong. And I hope I’m wrong here.

But the numbers are looking pretty atrocious right now.

As much as I’d like to side with “Anonymous,” as Rahm Emanuel enters his second term as Mayor of Chicago, I feel that proverbial brick wall is still fast-approaching.

Perhaps the best Chicagoans can hope for at this point is a controlled crash landing.

I know one thing. If I were still living in the city, I’d be preparing for the coming carnage.

More on that topic soon.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Korecki, Natasha. “Getting Hispanics to the polls in Chicago mayor’s race no slam dunk for Chuy.” Chicago Sun-Times. 15 Mar. 2015. (http://chicago.suntimes.com/chicago-politics/7/71/438985/getting-hispanics-polls-chicago-mayors-race-slam-dunk-chuy). 8 Apr. 2015.

Pearson, Rick and Ruthhart, Bill. “’Second chance.’ Emanuel says he’s ‘humbled’ by victory.” Chicago Tribune. 8 Apr. 2015. (http://www.chicagotribune.com/news/local/politics/ct-chicago-mayoral-election-20150407-story.html#page=1). 8 Apr. 2015.

SCC. “Mixed Bag.” Second City Cop. 7 Apr. 2015. (http://secondcitycop.blogspot.com/2015/04/mixed-bag.html). 8 Apr. 2015.

Judis, John B. “Broken city: Rahm Emanuel and the unraveling of Chicago.” National Journal. 30 Mar. 2015. (https://www.yahoo.com/politics/broken-city-rahm-emanuel-and-the-unraveling-of-115037357316.html). 8 Apr. 2015.

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Bill Introduced To Permit Illinois Municipalities To File For Bankruptcy

Since I started blogging about a U.S. financial crash back on Memorial Day Weekend 2007, I’ve believed one casualty will be municipal government. Particularly in Illinois. So imagine my non-surprise when I spotted an article on the Chicago Tribune website a couple of days ago about proposed legislation at the state level granting Illinois towns the authority to file for bankruptcy. Nick Swedberg of the Associated Press wrote on March 26:

Stressed by pension debt, other financial issues and the possibility losing a chunk of their state aid, some Illinois cities want the option to file for bankruptcy. They’ve found an ally in a Republican lawmaker, who’s proposed legislation to allow municipalities to follow in the footsteps of Detroit and other cities in restructuring debt and paying back creditors…

Rep. Ron Sandack is sponsoring legislation that would grant authority for communities to file for bankruptcy under Chapter 9 of the federal code. The Downers Grove Republican says it’s a “measure of last resort,” especially with Gov. Bruce Rauner’s proposal in next year’s budget to cut in half the local governments’ share of state income taxes by 50 percent.

“It’s just giving time and space to do things right,” he said…

Swedberg added later in the piece:

Municipal bankruptcies are rare, NCSL data shows. Of 37 local government filings since 2010, only 8 were cities, with the majority filed by utilities and special districts.

Detroit filed for the nation’s largest municipal bankruptcy in July 2013, looking to restructure $12 billion of debt…

It’s true. Municipal bankruptcies haven’t happened too often. But keep in mind what Eric Weiner wrote on the NPR website back on February 28, 2008:

For most of U.S. history, cities and towns were not eligible for bankruptcy protection. But during the Great Depression, more than 2,000 municipalities defaulted on their debt, and they pleaded with President Roosevelt for a federal bailout. “All they got was sympathy,” reported Time magazine in 1933. Instead, Roosevelt pushed through changes to the bankruptcy laws that allows towns and cities to file for bankruptcy. They even got their own section of the bankruptcy code: Chapter Nine…

(Editor’s note: Bold added for emphasis)

There’s also this from Robert Slavin on The Bond Buyer website back on January 14:

For the municipal bond industry, 2015 marks the midpoint in what may turn out to be the decade of the bankruptcy.

Four of the five largest municipal bankruptcy filings in United States history have been made in roughly the last three years, a trend analysts attribute to the aftereffects of the 2008 credit crisis and Great Recession, as well as changing attitudes about debt.

“The crash of 2008 and five years of stagnation preceded by years of escalating wages, pensions and Other Post-Employment Benefits set the stage for our recent Chapter 9 filings,” said Arent Fox partner David Dubrow.

Chapter 9 municipal bankruptcy was adopted in 1937 but had been rarely used, particularly by large governments. However, since November 2011 San Bernardino, Calif., Stockton, Calif., Jefferson County, Ala., and Detroit have filed four of the five largest bankruptcies as measured by total obligations.

(Editor’s note: Bold added for emphasis)

Could the specter of Meredith Whitney, the “Diva Of Doom,” be returning to take revenge on the municipal bond industry?

I’m not surprised Illinois municipalities would be interested in House Bill 298. From Patrick Rehkamp and Andrew Schroedter on the website of the Chicago-based Better Government Association back on December 6, 2014:

Reasons for filing vary but often include troubled public development projects, unanticipated hefty legal judgments against a taxpayer-backed entity, or massive pension and bond debt payments that leave a municipality cash-strapped and unable to cover operating costs of employee salaries, vendor payments and other expenses.

(Editor’s note: Bold added for emphasis)

The public pension crisis in Chicago and Illinois has been well-publicized for some time now. And while such entitlements are supposedly protected by a provision in the 1970 Illinois Constitution, the BGA noted in their piece:

In Illinois, public employee pensions are guaranteed by the state constitution. But in the Detroit and Stockton, California bankruptcy cases, federal judges have ruled that pension benefits can be adjusted, the same as other debts, despite a constitutional guarantee.

(Editor’s note: Bold added for emphasis)

You can track the progress of HB 298 on the Illinois General Assembly website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Swedberg, Nick. “Bill pushes for possible municipal bankruptcies in Illinois.” Associated Press. 29 Mar. 2015. (http://www.chicagotribune.com/news/sns-bc-il–closer-look-bankruptcy-20150329-story.html). 3 Apr. 2015.

Weiner, Eric. “What Happens When City Hall Goes Bankrupt?” NPR. 28 Feb. 2008. (http://www.npr.org/templates/story/story.php?storyId=60740288). 3 Apr. 2015.

Slavin, Robert. “Why So Many Big Bankruptcies?” The Bond Buyer. 14 Jan. 2015. (http://www.bondbuyer.com/news/markets-buy-side/why-so-many-big-bankruptcies-1069539-1.html). 3 Apr. 2015.

Rehkamp, Patrick and Schroedter, Andrew. “Next Up: Illinois Municipal Bankruptcy?” Better Government Association. 16 Dec. 2014. (http://www.bettergov.org/next_up_illinois_municipal_bankruptcy/). 4 Apr. 2015.

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85% Of Public Pension Funds To Fail In 30 Years?

Caught the following yesterday on the USA Today website regarding a looming national public pension crisis. Matt Krantz reported Wednesday:

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades

Public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades, Bridgewater says. An investment return of roughly 9% a year is needed to meet those onerous obligations…

(Editor’s note: Bold added for emphasis)

Westport, Connecticut-based Bridgewater was founded in 1975, and “manages approximately $150 billion in global investments for a wide array of institutional clients, including foreign governments and central banks, corporate and public pension funds, university endowments and charitable foundations,” according to their website.”

I don’t want to steal USA Today’s thunder here, so you can read the entire story on their website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Friday, April 11th, 2014 Bankruptcy, Entitlements, Retirement No Comments

Chicago, The Writing Is On The Wall

The city of Chicago is in for some tough times down the road.

“The Machine” keeps putting a positive spin on the city’s deteriorating financial condition, but the numbers don’t lie. I’ve rattled them off time and time again, the most recent being Tuesday. The Chicago press (sans Fran Spielman over at the Chicago Sun-Times and a few others) has even caught on, publishing articles with more frequency these days that reveal just how ugly the city’s finances truly are. Case in point, a Chicago Tribune editorial entitled “Chicago is on the road to Detroit” that appeared on their website yesterday. From the piece:

By the most recent numbers, Mayor Rahm Emanuel’s government owes $13.9 billion in general obligation bond debt, plus $19.5 billion in unfunded pension obligations. Add in Chicago Public Schools and City Hall’s other “sister agencies” and you’re talking billions more in debts that Chicago taxpayers owe. Yet here we are on a Wednesday when the mayor probably will get approval from a derelict City Council to issue another up-to-$900 million in bonds backed by property taxes — and to double, to $1 billion, the amount of short-term bank money his administration can borrow to raise cash…

(Editor’s note: Italics added for emphasis)

By the way, Mayor Emanuel got that approval. Fran Spielman reported on the Chicago Sun-Times website Wednesday morning:

Without a word of debate, the City Council on Wednesday blindly added $1.9 billion to Chicago’s mountain of debt even though aldermen have no idea how the money will be spent.

The vote was 43-to-4. “No” votes were cast by Aldermen Bob Fioretti (2nd), Scott Waguespack (32nd), Brendan Reilly (42nd) and John Arena (45th)…

Now, I’ve heard/read some Chicagoans say something along the lines of don’t worry about the city’s finances, Governor Quinn and the State of Illinois or President Barack Obama and the federal government will ride to the rescue of their fellow Democrats in control of the “Windy City.”

To which I say, I’m not so sure. Is there anyone in America who doesn’t know how much of an economic basket case the “Land of Lincoln” is? A $100.5 billion public pension debt and the worst credit rating of all 50 U.S. states routinely make headlines across the country. As for the federal government, I keep encountering the words “insolvent” and “bankrupt” more and more these days to describe the nation’s finances. And don’t think for a second other economically-challenged cities across the country won’t cry foul to the Oval Office and their elected representatives if Chicago is bailed out. I find it hard to believe the State of Illinois or the Feds could come to Chicago’s rescue without there being serious financial and political repercussions.

Chicago, the writing is on the wall. By the looks of things, that great city where I was born and from which I recently just left is now past the proverbial point of no return, no longer looking capable of effectively navigating the growing financial crisis.

While I don’t foresee the city’s death, I do envision a continuation of its already gradual decline until a point of fiscal implosion is reached. Will it be Detroit-esque in its bottoming out? I don’t know. But it sure as hell won’t be pretty.

Faced with such a scenario, will Chicagoans choose to stay and contend with the almost certain prospect of much higher taxes and fees in conjunction with curtailed city services (public safety comes to mind here), or will they depart the “Second City” like I did?

One might think the latter (going), but I’m sure there will be plenty of the former (staying).

In the interests of surviving and prospering, which is the better choice?

I don’t think the answer is as clear-cut as many readers might think. And it’s something I’ll be exploring and blogging about more in the coming days.

By Christopher E. Hill
Survival And Prosperity (survivalandprosperity.com)

Sources:

“Chicago is on the road to Detroit.” Chicago Tribune. 5 Feb. 2014. (http://www.chicagotribune.com/news/opinion/editorials/ct-chicago-debt-edit-0205-20140205,0,3757189.story). 6 Feb. 2014.

Spielman, Fran. “City Council OKs going $1.9 billion deeper into debt.” Chicago Sun-Times. 5 Feb. 2014. (http://www.suntimes.com/25398572-761/city-council-oks-going-19-billion-deeper-into-debt.html). 6 Feb. 2014.

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Chicago’s Finances A Mess For 2014 And Beyond

The beginning of the new year is always a popular time for predictions.

Here’s one I’ve heard being uttered with more regularity lately:

“Chicago’s the next Detroit”

You may recall that back on December 3, the City of Detroit officially became the largest municipality in U.S. history to enter Chapter 9 bankruptcy.

I’m guessing those making that comment presume the “Windy City” is going to be bankrupt too.

I just got done reading another comparison to Detroit being made again. This time it’s from TheStreet.com, the U.S. financial news and services website co-founded by Jim Cramer, host of CNBC’s Mad Money. Jonathan Yates wrote on December 30:

A recent report by the Economist Intelligence Unit rated Chicago one of the top 10 cities in the world for its ability to “attract capital, business, talent and tourists.”

Although that certainly will focus global attention on “The Second City,” Chicago’s precarious financial condition could result in it becoming even more well known — for going broke…

At least Detroit had an excuse with the collapse of the automobile industry.

The major reason for Chicago’s financial woes is mismanagement. The city’s employee costs, especially for pensions, are unsustainable…

Yates, a contributor to TheStreet.com, suggests investors avoid Chicago bonds. He pointed out later in his piece:

Chicago is a great city with great restaurants, great museums and great architecture.

But those are not reasons to buy its bonds, because Chicago’s finances are a mess, and that won’t change anytime soon…

“Chicago’s finances are a mess, and that won’t change anytime soon…”

Sadly, I agree with him there.

Now, Yates mentioned Chicago’s public pension crisis. Back on August 5, The New York Times highlighted just how serious a threat it is to the city’s well-being. Monica Davey and Mary Williams Walsh reported on the Times website:

Corporations are moving in, and housing prices are looking better across the region. There has been a slight uptick in population. But a crushing problem lurks beneath the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. Its plight threatens to upend the finances of President Obama’s hometown, now run by his former chief of staff, Rahm Emanuel.

The pension fund for retired Chicago teachers stands at risk of collapse. The city’s four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red — as much as it would cost to pay 4,300 police officers to patrol the streets for a year

(Editor’s note: Italics added for emphasis)

Rick Lyman of the Times added on December 4:

Under state law, the city must increase its contributions to its workers’ pension funds by $590 million in 2015, to a total annual contribution of $1.4 billion for current and future retirees. If no pension deal can be reached by November of next year, when the city will draft its next budget, the city will either have to raise taxes or cut services or some combination of both

(Editor’s note: Italics added for emphasis)

City Hall and their supporters can spin Chicago’s growing financial crisis as much as they want. But at the end of the day, they’ve got all the above problems to contend with as well as a long-term debt that’s now up to nearly $29 billion, or $10,780 for every city resident, according to the latest City of Chicago official audit.

I became aware of the extent of Chicago’s financial woes a couple of years back.

It’s a big reason why my girlfriend and I moved out of the city when we did.

I’ve been warning about this debacle for some time now on this blog. I can only hope my Chicago-based readers have taken note of it and are at least thinking about how they might minimize their exposure to the coming mess.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Yates, Jonathan. “Avoid Chicago’s Bonds; It Could Be the Next Detroit.” TheStreet.com. 30 Dec. 2013. (http://www.thestreet.com/story/12188473/1/avoid-chicagos-bonds-it-could-be-the-next-detroit.html). 3 Jan. 2014.

Davey, Monica and Walsh, Mary Williams. “Chicago Sees Pension Crisis Drawing Near.” The New York Times. 5 Aug. 2013. (http://www.nytimes.com/2013/08/06/us/chicago-sees-pension-crisis-drawing-near.html?pagewanted=1&_r=0&src=me). 3 Jan. 2014.

Lyman, Rick. “Chicago Pursues Deal to Change Pension Funding.” The New York Times. 4 Dec. 2013. (http://www.nytimes.com/2013/12/05/us/chicago-pursues-deal-to-change-pension-funding.html?_r=0). 3 Jan 2014.

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Illinois Senate President John Cullerton Says No State Public Pension Crisis

“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)

Sources:

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.

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State Of Illinois Bankrupt By 2015?

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)

Sources:

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.

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Labor Minister: France ‘Is A Totally Bankrupt State’

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)

Sources:

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.

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More Homicides Happening In ‘Nice’ Places

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!”

Sources:

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.

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Michigan Lawmaker: ‘We’re Going To Have To Seriously Consider Dissolving The City Of Detroit’

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”
YouTube Video

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.

Sources:

“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.

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Thursday, November 29th, 2012 Bankruptcy, Bonds, Credit, Defaults, Fiscal Policy, Government No Comments

2012 Election Thoughts

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.

Sources:

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.

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Illinois Has $7.5 To $8 Billion In Unpaid Bills At Start Of FY 2013

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.

Source:

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.

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Three California Cities File For Bankruptcy In Less Than Two Weeks

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)…

Sources:

“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.

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Wednesday, July 11th, 2012 Bankruptcy, Defaults, Deficits, Government No Comments


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