Debt Crisis

U.S. To Become Argentina After Financial Crash?

Of all the various threats to America today, there’s one that seems more likely to occur than the others and which I’m most concerned about.

So much so I decided to start blogging about it back on Memorial Day Weekend in 2007 as creator/editor of Boom2Bust.com, “The Most Hated Blog On Wall Street”:

A U.S. financial crash.

And seven years on and trillions of dollars later spent trying to “kick the can down the road,” I feel it’s pretty much inevitable at this point.

Cheery thought, I know. But at least it’s not the end of the world.

Actually, I think we started on that journey even before the 2008 global economic crisis and “Great Recession” reared its ugly head and was eventually “papered-up” by Washington and the Federal Reserve.

So the U.S. economy won’t be doing a high-speed nose-dive into the ground. Rather, it’s embarked on a slow, gradual descent where the end result will be the same- a pile of smoldering wreckage.

If there’s a recent example in the world the United States might end up emulating, I suspect its Argentina, who suffered a financial collapse at the end of 2001 and which still is tormented by their crash.

Enter Fernando “FerFAL” Aguirre, who regular readers of this blog might remember me mentioning before. I first brought up FerFAL on Survival And Prosperity within days of launching the blog. I wrote on December 1, 2010:

Last week I mentioned that I follow a couple of blogs on a regular basis. Surviving In Argentina is one of those and is authored by an Argentine named Fernando “FerFAL” Aguirre who, like Orlov, has first-hand experience of what a financial collapse looks like. In his blog, Aguirre (who has lived in the U.S.) talks about how he and his young family survived the economic crisis in Argentina and how they’re coping now. It’s a rich source of information for surviving tough times, so much so FerFAL went ahead and wrote The Modern Survival Manual: Surviving the Economic Collapse in 2009.

Aguirre recently came out with two videos on YouTube.com in which he draws on his experiences in Argentina (he resides in the United Kingdom these days) to share with viewers what life was like after the vibrant Argentine economy collapsed last decade:


“Life after an Economic Collapse: The same… only Worse Part I”
YouTube Video


“Life after an Economic Collapse: The same… only Worse Part II”
YouTube Video

I understand FerFAL plans on releasing a third video to complete the series. In the meantime, I highly-recommend watching the first two to get an idea what life might be like if (when?) the United States suffers a similar fate as that South American country. Pretty sobering stuff if you ask me.

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

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Chicago’s 2015 Budget Includes Tax And Fee Hikes

Gee, who could’ve anticipated new fee and tax hikes look to be in store for Chicago next year?

From Fran Spielman over on the Chicago Sun-Times website this morning:

[Chicago Mayor Rahm] Emanuel will campaign for re-election on a budget that raises $62.4 million through “targeted” tax hikes and closing “loopholes,” which amounts to the same thing.

People who live, work and play in Chicago will be paying more for everything from parking and vehicle leasing to cable television and stadium skyboxes…

(Editor’s note: Bold added for emphasis)

These individuals have been doing that for a number of years now. Hal Dardick pointed out over on the Chicago Tribune site:

As the Chicago City Council prepares to approve his latest budget Wednesday, Mayor Rahm Emanuel repeatedly has reminded voters that he didn’t raise city property taxes during his first four years in office.

But that doesn’t mean homeowners haven’t had to pay. Under Emanuel, vehicle stickers cost more. Cable TV and phone taxes went up. And water and sewer fees increased significantly…

Taken together, Emanuel’s hikes mean the typical Chicago family will pay about $481 more to the city next year than it did in 2011. That’s the equivalent of a typical Chicago homeowner paying 60 percent more in city property taxes, which are nearly $800 a year for city and library services on a $250,000 home…

(Editor’s note: Bold added for emphasis)

“Nearly $800 a year for city and library services on a $250,000 home”

In the Chicago neighborhood I recently moved out of, I’m not sure if any inhabitable houses at that price range with more than 2 bedrooms/1 bath even exists. So I’m guessing a number of my old neighbors- who already shoulder a significant tax burden for the city- will be somewhat pissed to hear of this “good news” coming out of City Hall.

That being said, it’s not exactly Chicago’s “financial reckoning day” we’re talking about here. But it’s probably not what Chicagoans want to deal with as the holiday season kicks-in.

As for the well-publicized pension crisis going on in the “Windy City,” Spielman added:

By December, 2015, the City Council must decide whether to raise property taxes — or find other new revenues — to fund a state-mandated, $550 million payment to shore up police and fire pension funds.

(Editor’s note: Bold added for emphasis)

So a property tax hike might also be coming down the pipeline.

One more thing. Regarding the ongoing manpower shortage in the Chicago Police Department? That doesn’t look like it’s going to be resolved in 2015. From the Sun-Times piece:

Once again, the mayor’s budget includes only enough money to keep pace with retirements. It also includes roughly $70 million in police overtime, down from $100.3 million in 2013 and a projected $95 million this year…

(Editor’s note: Bold added for emphasis)

“Crime is down!” Yeah, whatever.

As always, I’m glad to see Fran Spielman and Hal Dardick are on top of their game.

What does all this mean for Chicago residents/workers/visitors?

It’s probably wise to budget a good deal more money for anything city-related next year. Even more so in 2016 considering what could be in store with the city’s public pension mess and what Cook County is telegraphing these days (blogged about Monday).

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

(UPDATE: The Chicago City Council approved Mayor Emanuel’s proposed 2015 city budget Wednesday by a vote of 46-4, and “puts off dealing with the city’s most vexing financial woes until after next year’s elections” according to the Tribune Thursday morning)

Sources:

Spielman, Fran. “Chicago City Council set to pass Emanuel’s $7.3 billion budget.” Chicago Sun-Times. 19 Nov. 2014. (http://politics.suntimes.com/article/chicago/chicago-city-council-set-pass-emanuels-73-billion-budget/wed-11192014-742am). 19 Nov. 2014.

Dardick, Hal. “Higher Emanuel fees and taxes add up.” Chicago Tribune. 19 Nov. 2014. (http://www.chicagotribune.com/news/local/politics/ct-emanuel-budget-2015-met-20141118-story.html#page=1). 19 Nov. 2014.

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Fixed? Illinois Public Pension Gap Surpasses $111 Billion

“The Illinois General Assembly barely passed legislation yesterday that’s been touted to ‘fix’ the state’s $100 billion public pension crisis.

Illinois Governor Pat Quinn, who has promised to sign SB0001, declared in a press release Tuesday:

Since I took the oath of office, I’ve pushed relentlessly for a comprehensive pension reform solution that would erase a $100 billion liability and restore fiscal stability to Illinois.

Today, we have won. The people of Illinois have won.

Not so fast, big guy…”

-Survival And Prosperity, December 4, 2013, post

I remember when Illinois Governor Pat Quinn signed off on Illinois Senate Bill 1 (or 0001, take your pick) on December 5 of last year, talk about the State’s monstrous public pension funding gap practically disappeared overnight. But yesterday, Benjamin VanMetre of the Illinois Policy Institute- “an independent research and education organization generating public policy solutions aimed at promoting personal freedom and prosperity in Illinois”- dredged up that nightmare for Illinoisans over at their website. That “$100 billion liability” that was supposed to be “erased.” It’s now more than $111 billion. VanMetre wrote:

Illinois’ unfunded pension liability grew to more than $111 billion this year, according to official estimates. That’s a $48 billion increase just since 2009.

That $111 billion pension shortfall means the state now has only 39 cents of every dollar it should have in the bank today to pay for future benefits. In the private sector, these funds would be deemed bankrupt…

Illinois Senate Bill 1, which was touted to reduce the State’s annual pension payment by more than $1 billion, is currently facing a legal challenge. VanMetre added:

But as we wait for a decision, Illinois’ pension debt continues to grow. The state’s pension payment for the current budget year totals $6.9 billion, and without reform, that pension payment will balloon to $7.6 billion for the 2016 budget year; an increase of $681 million…

(Editor’s note: Bold added for emphasis)

So what’s the likelihood of the courts shooting down this new public pension law? As I wrote in that December 4, 2013, post:

This legislation is almost certainly headed to court, as in the Illinois Supreme Court. As I noted on December 1, a provision of the 1970 Illinois Constitution defines public pension benefits as “an enforceable contractual relationship” that “shall not be diminished or impaired.”

And even if it passes constitutional muster, consider what I also added in that post:

As I blogged yesterday, the Wall Street Journal recently picked apart the legislative “fix,” and concluded not only was it “fake” but:

Even under the most optimistic forecasts, these nips and tucks would only slim the state’s pension liability down to $80 billion- which is where it was after Governor Quinn signed de minimis fixes in spring 2010 to get him past that year’s election…

“$80 billion.”

Stay tuned…

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

Source:

VanMetre, Benjamin. “Illinois’ Pension Debt Balloons To $111 Billion.” Illinois Policy Institute. 17 Nov. 2014. (http://www.illinoispolicy.org/illinois-pension-debt-still-ballooning/). 18 Nov. 2014.

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Peter Schiff Warns Of Coming Recession, QE 4

It’s been pretty busy around here as I play catch-up on my different Internet projects. But I did get the chance last night to view the latest entry on “crash prophet” Peter Schiff’s The Schiff Report YouTube.com video blog. What is the CEO/Chief Global Strategist of Euro Pacific Capital predicting these days? Another U.S. recession and QE 4. Schiff warned:

When this illusion collapses, this fantasy of a U.S. economic recovery- because everybody believes there’s no recession anywhere in sight, that we’re years away from a U.S. recession- when in fact, another recession is right around the corner. And in fact, it will be worse than the recession that we had in 2008, 2009, if the Fed does not come in with QE 4…

I expect Janet Yellen to react to this coming recession the way Ben Bernanke reacted to the last one. The way Alan Greenspan reacted to the last one. Because that’s the only playbook we’ve got. And remember, when this recession starts, they can’t start with rate cuts. Rates are at zero. You can’t cut from zero. All they can do is revamp QE. And believe me, it’s going to have to be a lot bigger than QE 3. QE 4 is going to have to be bigger than QE 3 for the same reason QE 3 had to be bigger than QE 2- the economy builds up a tolerance. The more addicted to QE, the more QE you need to get any kind of result. And this last result was minimal in the real economy. I mean, yes- the Fed was able to get the stock market to go up, but the real economy never experienced any real economic growth. The average American is worse off today than when QE began. By far. Incomes are down. Real employment is down. Net worth is down. Poverty is up. Government dependency is up. The cost of living is up. Nothing has improved, except maybe the level of optimism on Wall Street…

This crisis is not really going to be about a credit crisis. Not private credit. It’s going to be about debt. Sovereign credit. It’s going to be about the dollar. A currency crisis. A sovereign crisis. Which is going to be very different than the crisis we had in 2008. It’s a crisis of an excess of QE. Of an overdose of QE. That’s the one that’s coming. That’s the one that we have to prepare for. That’s the one that I have been warning about since the beginning…


“The Scary Truth Behind the Halloween Rally”
YouTube Video

By 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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Flee Chicago By The End Of 2015?

April 7, 2015.

That’s the date of the next Municipal Runoff and Supplementary Aldermanic Election in the wake of the February 24, 2015, Municipal General Election in the city of Chicago, Illinois.

And that would be the ideal deadline for moving out of the “Windy City” if I still lived there due to the likelihood of fees, fines, and taxes being hiked (even more than they already have) shortly thereafter, along with additional government “belt-tightening.”

If not April 7, definitely by the end of the year. Hal Dardick reported on the Chicago Tribune website right before the weekend:

Mayor Rahm Emanuel and aldermen won’t grapple this fall with the financial reckoning the city faces over its underfunded police and fire pension systems, budget officials acknowledged Thursday.

Instead, the Emanuel administration plans to take advantage of a state law that gives it until December 2015 to decide to make changes to its property tax levy. For years, both the current and former mayor have been saying property taxes would have to be hiked or services drastically cut to come up with the extra $550 million.

By the end of next year, the February city elections and any potential April runoffs will be history. Delaying a decision also will buy the city more time to get the General Assembly to enact pension changes that could significantly reduce the required payments to the two retirement funds..

(Editor’s note: Bold added for emphasis)

Fine. So the Illinois General Assembly votes to allow the City of Chicago to “kick the can down the road” on its pension fund payments. The well-publicized crisis isn’t going anywhere, as the public sector retirees are still owed their money.

(Editor’s note: Check out this graphic on the Tribune website showing Chicago’s pension debt rank compared to the 25 largest U.S. cities and Puerto Rico. It’s disturbing.)

And how about that “Sword of Damocles” hanging over the city’s head in the form of long-term debt it’s on the hook for? Fran Spielman reported on the Chicago Sun-Times website on July 26, 2013:

The new round of borrowing brings Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident.

(Editor’s note: Bold added for emphasis)

Remember- those figures were from a year ago. Updated numbers should be out shortly.

Yep. If I hadn’t departed the city like I did last year, I’d be making plans to leave Chicago by the end of 2015 at the latest.

But that’s me. I understand individual circumstances vary, and there are residents who can’t leave or choose not to.

Despite what others may think, I have an idea this group can still weather the coming storm if they’re really up to the task. I’m guessing it will be somewhat harder though residing in a city already burdened with significant financial problems when challenging times arrive.

More about this in future posts…

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

Sources:

Dardick, Hal. “Chicago’s day of reckoning over pensions delayed.” Chicago Tribune. 1 Aug. 2014. (http://www.chicagotribune.com/news/watchdog/ct-rahm-emanuel-budget-hole-met-0801-20140801-story.html). 5 Aug. 2014.

Spielman, Fran. “City of Chicago’s cash cushion plummets, debt triples, arrests drop, water use rises.” Chicago Sun-Times. 26 July 2013. (http://www.suntimes.com/21552920-761/city-by-the-numbers-cash-cushion-plummets-debt-triples-arrests-drop-water-use-rises.html). 5 Aug. 2014.

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Jim Rogers: Some Currencies, Real Assets Could Shine When Coming Bust Arrives

Enough about Chicago already. Let’s talk money.

Last time I blogged about well-known investor, author, and financial commentator Jim Rogers, he shared this warning regarding the ocean of liquidity that’s been created by unprecedented money printing via the world’s central banks:

When it ends, we will all pay a terrible price.

That was the end of May. And now?

Disturbingly, he’s singing the same tune.

Elena Torrijos reported on the Yahoo! Finance Singapore website yesterday:

He doesn’t know when the party is going to end, but he believes when it does, “we’re all going to suffer very, very badly”. He said the US would also fare worse than it has in previous economic setbacks because the country’s debt is now so much higher than before.

“So the next one [economic bust] is going to be much worse… so be worried, be careful and be prepared,” he warned.

Everybody should have a game plan, he said. “Learn how to cut back if you need to, even learn how to sell short. Short sellers are going to earn a lot of money the next time around,” he pointed out.

(Editor’s note: Bold added for emphasis)

The Singapore-based Rogers suggested certain currencies could initially offer refuge when the “bust” arrives. Torrijos added:

He believes some currencies are going to do well in that time of turmoil. “The Chinese renminbi, for instance, will probably continue to do extremely well over the next few years. I even own the US dollar at the moment. The US dollar is a terribly, terribly flawed currency, but at the moment I own it because when the turmoil comes many people will flee to what they see as a safe haven,” he said.

When invariably central banks start printing money to pump prime their economies, he’s not sure which currency he’d flee to. “Maybe the renminbi, maybe gold, probably real assets, because once the floodgates open even more, the value of paper money everywhere is going to go down a great deal,” he said.

(Editor’s note: Bold added for emphasis)

What about commodities- something with which the former investing partner of George Soros is so closely identified with? Back on December 3, 2013, Rogers appeared on The Lang and O’Leary Exchange, a Canadian business news television series which airs weekdays on CBC Television and CBC News Network. He told host Amanda Lang:

This is going to end badly. We’re all floating around on a sea of artificial liquidity right now Amanda. This is not going to last. No, no. And when it ends, the bull market in commodities will probably end too. But, the bull market in a lot of stuff will end.

(Editor’s note: Bold added for emphasis)

By 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.)

Source:

Torrijos, Elena. “Jim Rogers reveals his Singapore investment strategy.” Yahoo! Finance Singapore. 14 July 2014. (https://sg.finance.yahoo.com/news/jim-rogers-reveals-his-singapore-investment-strategy-153319907.html). 15 July 2015.

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CNNMoney Poll: 63 Percent Of Americans Believe Most U.S. Children Won’t Be Better Off Than Their Parents

Long-time readers of Survival And Prosperity might remember this bit about American kids possibly not turning out to be “better off” than their parents. I blogged on September 21, 2011:

Back in 2006 when I was working at a suburban fire department, a battalion chief came into my office, saw the local paper on my desk, and asked, “Did you read that piece about how kids these days might be the first generation who won’t be better off than their parents?” I replied, “Yeah, it was depressing.” The fire officer confided, “That stuff scares me. I’m worried they might be right about that.” I’d be concerned too, especially if I were the parent of a couple of young kids like this chief was.

I was reminded of that exchange when I read the following from Tami Luhby on the CNNMoney website yesterday:

The American Dream is impossible to achieve in this country.

So say nearly 6 in 10 people who responded to CNNMoney’s American Dream Poll, conducted by ORC International. They feel the dream — however they define it — is out of reach.

Young adults, age 18 to 34, are most likely to feel the dream is unattainable, with 63% saying it’s impossible. This age group has suffered in the wake of the Great Recession, finding it hard to get good jobs.

Younger Americans are a cause of great concern. Many respondents said they are worried about the next
generation’s ability to prosper.

Some 63% of all Americans said most children in the U.S. won’t be better off than their parents. This dour view comes despite most respondents, 54%, feeling they are better off than their own parents…

(Editor’s note: Bold added for emphasis)

According to Luhby, the poll came from telephone interviews with 1,003 adult Americans from May 29 to June 1, 2014.

I’m really not surprised by the findings of this survey. Besides an ugly employment picture, middle-class incomes are stagnating and the cost of living is rising (despite what the government and its shills say).

Here’s something else I mentioned in that September 2011 post. It’s from Annalyn Censky- also on the CNNMoney website:

It’s official. The first decade of the 21st century will go down in the history books as a step back for the American middle class.

Last week, the government made gloomy headlines when it released the latest census report showing the poverty rate rose to a 17-year high…

But the data also gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996.

And over the 10-year period, their income is down 7%

(Editor’s note: Bold added for emphasis)

Are middle-class wages still stuck in reverse today? From a September 17, 2013, post on the Free exchange blog (The Economist website):

THE Census released new figures on income and poverty today… They’re both grim and unsurprising. In 2012 the real median household income in America was flat relative to 2011 and down considerably from the pre-recession level

(Editor’s note: Bold added for emphasis)

So is the American Dream impossible to achieve anymore?

I don’t think so. But I predict many of the kids today and possibly future generations will find it significantly more difficult to realize the Dream due to the self-serving and ill-advised fiscal and monetary policies carried out by the adults of the last few decades to the present time.

By incurring trillions of dollars of debt during this time period, we’ve screwed a good number of our kids and future Americans.

Here’s hoping yours won’t be employed as a servant to the Chinese or whoever the next hegemon is in the coming years…


“Chinese Professor”
YouTube Video

Sources:

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

Luhby, Tami. “The American Dream is out of reach.” CNNMoney. 4 Jun. 2014. (http://money.cnn.com/2014/06/04/news/economy/american-dream/index.html). 6 June 2014.

R.A. “Stagnation for everyone.” Free exchange. 17 Sep. 2013. (http://www.economist.com/blogs/freeexchange/2013/09/incomes). 6 Jun. 2014.

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Chicago’s Monthly Phone Tax To Rise 56 Percent?

New and higher fees, fines, and taxes. Less government services.

That’s what Chicagoans should expect going forward considering the city’s fiscal health and who’s running the show.

Fran Spielman reported on the Chicago Sun-Times website last night:

After playing cat-and-mouse for days, Mayor Rahm Emanuel’s administration came clean Thursday: Chicago wants to raise the monthly fee tacked on to hardline telephone and cell phone bills by 56 percent — to $3.90…

(Editor’s note: “After playing cat-and-mouse for days, Mayor Rahm Emanuel’s administration came clean Thursday…” Beautifully worded; bold added for emphasis.)

Spielman continued:

Instead of simply asking the General Assembly to renew a $2.50-a-month surcharge due to expire July 1, cash-strapped Chicago is seizing the opportunity to get more money — by asking state lawmakers to raise the cap to “the highest monthly wireline surcharge imposed by any county or municipality” in Illinois.

The highest monthly telephone tax around the state is the $3.90 imposed in Putnam County. Under the bill Emanuel is hoping to push through in the waning days of the Legislature’s spring session, Chicago would be empowered to match that $3.90 — and go higher if any other city or town goes first.

The new and higher tax would apply to both cell phone bills and wireline phones, according to a summary sheet of the legislation distributed by City Hall. The bill would also empower the city raise the fee imposed on prepaid cell phones from the current “seven percent of the transaction amount” to nine percent…

According to Spielman, a 56 percent increase in the monthly phone tax would generate an additional $50.4 million for the City’s coffers.

John Byrne, Monique Garcia, and Ray Long added on the Chicago Tribune website Thursday:

Emanuel’s late push for a measure that would allow the City Council to raise 911 fees by as much as $1.40, which could bring the monthly charge on landline and cell phone bills to $3.90 a month, cleared its first hurdle in the Senate.

Senate President John Cullerton, D-Chicago, said the increase was needed because the current $2.50 fee isn’t raising enough money to pay for operating the city’s emergency response center, forcing the Emanuel administration to dip into other pots of money to keep it running. How much more the fee hike would bring in depends on whether aldermen vote to increase the fee and to what level.

The city collected about $90 million last year through the current $2.50-per-month phone fee, Emanuel spokeswoman Kelley Quinn said. This year’s budget for the Office of Emergency Management and Communications is $123 million. Quinn did not directly answer whether the mayor wants to raise the 911 fee to an amount that will bring in more revenue than the city needs to cover the OEMC budget or how the city would use any extra revenue

Let’s see. Assuming the City of Chicago collects the same amount ($90 million) as last year from their monthly phone tax, adding the projected $50.4 million from a 56 percent hike totals just over $140 million. That’s enough to pay for OEMC operations plus tax- although something tells me that’s probably not where all the money would be steered to.

(Editor’s note: Bold added for emphasis)

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

Sources:

Spielman, Fran. “Emanuel seeks 56 percent hike in telephone tax.” Chicago Sun-Times. 29 May 2014. (http://politics.suntimes.com/article/chicago/emanuel-seeks-56-percent-hike-telephone-tax/thu-05292014-434pm). 30 May 2014.

Byrne, John, Garcia, Monique and Long, Ray. “Emanuel makes late push to raise 911 fees paid by those own landlines, cell phones.” Chicago Tribune. 29 May 2014. (http://www.chicagotribune.com/news/politics/clout/chi-emanuel-makes-late-push-to-raise-911-fees-paid-by-those-own-landlines-cell-phones-20140529,0,6958184.story). 30 May 2014.

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Study: Chicago Worst U.S. City For Total Travel Tax Burden

“It’s no secret that the city of Chicago is looking anywhere for new revenue sources to plug its $63.2 billion shortfall in government-pension funding, health insurance and other debt.

But city leaders should be careful not to squeeze travelers too hard.”

-Hilary Gowins Yelvington, Editor at the Illinois Policy Institute, in a May 29, 2014, blog post on IllinoisPolicy.org

There’s no question Chicago is a favorite destination for business and pleasure travel.

However, the findings of a recently-released study of travel-related taxes for major U.S. cities makes me wonder how many prospective visitors are steering clear of the “Windy City” due to the high level of such expenses.

Shane Downey wrote on The Business of Travel- the official blog of the Alexandria, Virginia-based nonprofit Global Business Travel Association- back on April 15:

The GBTA Foundation – the education and research arm of GBTA – annually tracks the tax burden imposed on business travel throughout the country. The study examines hotel lodging, car rentals and restaurant meal taxes in the top 50 U.S. destination cities, which are regularly used to fund local projects unrelated to tourism and business travel…

In the travel tax study, the top 50 U.S. markets are ranked by overall travel tax burden, including general sales tax and discriminatory travel taxes…

And where did travelers incur the highest total tax burden, factoring in general sales taxes and discriminatory travel taxes?

From the FOX News website Tuesday:

1. Chicago- $41.04/day

• The Windy City could just as easily be called the Spendy City; it’s at the top of the GBTA study for the third year in a row. Travelers will dish out 16 percent ($16.85) per day in hotel tax, along with $14.16 for a rental car (its overall 24.82 percent rate, the highest in the ranking, includes a $2.75 flat tax). Another study put Chicago’s 10.75 percent downtown restaurant tax at the top of all major U.S. cities…

Over 41 bucks a day. Wow. And top of the GBTA study for three years in a row now. Not something the City of Chicago should be proud of.

A part of me says, “Reign in these taxes, and business travel and tourism would really be booming in Chicago.”

But only after violent crime and the “city leaders” who sanctioned such high levels of taxation are dealt with first, of course.

Probably won’t see that happening anytime soon, however.

You can read the rest of that GBTA post on their website here.

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

Source:

Bachelor, Blane. “10 worst cities for travel taxes.” FOX News. 27 May 2014. (http://www.foxnews.com/travel/2014/05/27/10-worst-cities-for-travel-taxes/?intcmp=obnetwork). 29 May 2014.

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Peter Schiff Warns Of Coming Inflation, Accompanying Propaganda

“Crash prophet” Peter Schiff sees inflation getting worse in America. And with it, Washington, the Fed, and the mainstream media spinning rising prices as something that’s beneficial for the general public. The Euro Pacific Capital CEO and Chief Global Strategist added a new entry Tuesday on his YouTube video blog The Schiff Report, and warned viewers of the following:

It’s going to get worse. And, what is the Fed going to do about it? Because the problem is, no matter how high that inflation number gets, they can never admit it’s a problem. Because if they admit that it’s a problem, they’ve got to do something about it. But they can’t do anything about it. Because if they want to fight inflation, what tools do they have? Just one. They’ve got to raise interest rates, which means they’ve got to end quantitative easing. And in order to raise interest rates, they’ve got to start selling their bonds and their mortgages back into the market. That will collapse the real estate market, collapse the stock market, send the economy into a sharp recession, and bring about a financial crisis worse than 2008. So because they can’t do that, they can’t do anything. So they’re going to have to tolerate inflation, no matter how high it gets. They’re going to have to convince us that it’s good for us, no matter how high it gets. They’re going to say, “Oh, well, maybe it’s transitory,” “It’s because of the weather,” “Oh, you know, we had such low inflation for so long, we need a few years of higher inflation to even it all out.” Who knows what kind of excuses Janet Yellen is going to come up with to rationalize why whatever the inflation number is- no matter how high it is- it’s always going to be a good thing?

But I wonder if the media- if the guys at Bloomberg or the guys at The New York Times or the AP or the Financial Times- will ever see through this charade. Will they ever see through this smokescreen and come out and call the Fed out on this? Will they ever say, “You know what, we’ve got too much inflation- this is not good. Do something about it.” And when the Fed doesn’t do something about it, that’s going to be a big problem for the dollar. Because that’s when people realize that this is QE Infinity, that inflation is never going to stop, that the dollar’s value is going to erode away in perpetuity. That’s when the bottom drops out of the market. That’s when the real crisis comes in. Because now the dollar really starts to cave, and puts more pressure on the bond market. That means the Fed has to print a lot more money. A lot more dollars that nobody wants to buy the Treasuries that nobody wants to keep the market from collapsing. That accelerates the inflationary spiral, and puts the Fed in a real box. Because then, it just can’t print the dollar into oblivion. It can’t turn it into monopoly money. Then it has to slam on the breaks. Then it has to really jack up interest rates. Not just a few hundred basis points- ten percent, fifteen percent, twenty percent. Paul Volcker style. Of course, the medicine won’t go down nearly as smoothly as it did back then. Not that it was so great tasting- we had a pretty bad recession in 1980. But that’s nothing compared to what we’re going to go through, because we have a lot more debt now than we had then- it’s not even close. We don’t have the viable economy. We don’t have the trade surpluses or the current accounts surpluses. And we don’t have a federal government that has a long-term financing on the national debt. It’s all financed with T-bills. And we have all these adjustable rate mortgages. We have all these corporations, individuals that are so levered-up. We’ve got all these student loans and credit card debt. We have all this stuff that we didn’t have back in the 1980s that we’re going to have to deal with- thanks to the Fed.


“Media Reports Rising Food Prices as Positive News”
YouTube Video

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

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What Jim Rogers Is Buying In China, Russia These Days

Investor, author, and financial commentator Jim Rogers recently appeared on the Yahoo! Finance show The Daily Ticker. Host Lauren Lyster asked the former investing partner of George Soros about China and Russia. Rogers shared the following with viewers in a segment published yesterday:

Chinese Stocks

I am not buying much in China. I am buying a little bit. They still have a big debt problem, which worries me a lot. But, I have started buying because they had a big conference in November where they said, “This is what we’re going to spend our money on in the next twenty years.” Now, Ms. Lyster- they’ve got more money than I do. And they’re smarter than I am. And if they’re going to put a lot of money into some sectors of the Chinese economy, I am too. And, they said we’re going to open up the economy more and more- especially in finance. So I started putting a little more into financial companies. And more important, they said, “When there’s a situation where we’re not quite sure what to do, we’re going to let the market decide- such as health care….”

So, I’m finding optimism. I haven’t bought shares since 2008- November of 2008. But I’m starting to buy in a small way again.

Russian Stocks

I did buy during Crimea. I woke up and said, “I’ve got to do something now because this is really collapsing.” So I bought more when they marched into Crimea or whatever it was they did. But no- I’m looking right now. But if I weren’t talking to you, I’d probably be buying more.

Russian Ruble

I’m not buying the ruble so much naked. Not naked. But, I might. I might. You’re supposed to buy when there’s blood in the streets… Russia- there’s blood in the streets. Figuratively.


“Jim Rogers: Forget U.S. markets, I’m buying Chinese and Russian stocks”
Yahoo! Finance Video

By 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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31 Percent Of Chicago-Area Homeowners With Mortgages ‘Seriously Underwater’

Memorial Day Weekend 2007. I had just launched my first blog, Boom2Bust.com, “The Most Hated Blog On Wall Street,” from my apartment on Chicago’s Northwest Side. I remember thinking to myself, “Well, I don’t want to just focus on turmoil in the financial markets as part of a coming financial crash. I also need to talk about the housing bubble and when that monstrosity bursts as well.”

All of it happened (except Washington and the Fed managed to postpone the crash I was- and have been- warning about, leaving us with the “Panic of ’08” and the Great Recession instead), providing me tons of material to blog about over the last seven years.

Now, my girlfriend and I were lucky enought to spot and sit out the housing bubble, eventually picking up a place last year for $117,000 less than it was at the height of the madness (according to one valuation). Regrettably, a number of friends and acquaintances in the Chicagoland area bought homes during the market’s craziest years, when price levels were incredibly high (in my neighborhood, some barely inhabitable “shacks” were on the market for half-a-million dollars back then). I really hope they aren’t “underwater”- owing more on their mortgages than their properties are worth- but I suspect a number of them are. Mary Ellen Podmolik reported on the Chicago Tribune website this morning:

Despite improving home prices, 31 percent of Chicago-area homeowners with a mortgage were seriously underwater in March, owing at least 25 percent more on their home loans than the property’s value, a new report shows…

(Editor’s note: Bold added for emphasis)

31 percent? That’s bad news for the Chicagoland residential real estate market. The last time I talked about the “underwater people” on this blog was last fall, when I blogged:

This past Sunday, I spotted the following about underwater mortgages in my Chicago Tribune. Mary Ellen Podmolik wrote:

A lack of inventory is frustrating potential Chicago-area homebuyers, and a report last week from Zillow explains why some homeowners might like to sell their properties but can’t. Despite improving home values, 35.4 percent of Chicago-area homeowners with a mortgage were underwater at the end of June, meaning they owed more on their loan than the home was worth, Zillow said. That means those homeowners would have to sell their properties through a bank-approved short sale.

(Editor’s note: Bold added for emphasis)

So will that 31 percent “seriously underwater” rate improve anytime soon? Here’s hoping. But considering the economic headwinds still working against housing- I’m not going to hold my breath (no pun intended).

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

Source:

Podmolik, Mary Ellen. “Almost 1/3 of Chicago-area homeowners still significantly underwater.” Chicago Tribune. 18 Apr. 2014. (http://www.chicagotribune.com/business/breaking/chi-homeowners-underwater-20140417,0,7135589.story). 18 Apr. 2014.

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CBO: Updated 2014-2024 Budget Projections Show Substantially Rising Budget Shorfalls, Federal Debt

That idea that the U.S. could someday resemble a “banana republic” might not be too far off the mark. From the non-partisan Congressional Budget Office website today:

As it usually does each spring, CBO has updated the baseline budget projections that it released earlier in the year…

Between 2015 and 2024, annual budget shortfalls are projected to rise substantially—from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024—mainly because of the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. CBO expects that cumulative deficits during that decade will equal $7.6 trillion if current laws remain unchanged. As a share of GDP, deficits are projected to rise from 2.6 percent in 2015 to about 4 percent near the end of the 10-year period. By comparison, the deficit averaged 3.1 percent of GDP over the past 40 years and 2.3 percent in the 40 years before fiscal year 2008, when the most recent recession began. From 2015 through 2024, both revenues and outlays are projected to be greater than their 40-year averages as a percentage of GDP (see the figure below)…

In CBO’s baseline projections, federal debt held by the public reaches 78 percent of GDP by 2024, up from 72 percent at the end of 2013 and twice the 39 percent average of the past four decades (see the figure below). As recently as the end of 2007, federal debt equaled just 35 percent of GDP

Such high and rising debt would have serious negative consequences. Federal spending on interest payments would increase considerably when interest rates rose to more typical levels. Moreover, because federal borrowing would eventually raise the cost of investment by businesses and other entities, the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited. In addition, high debt means that lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unexpected challenges. Finally, high debt increases the risk of a fiscal crisis in which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates…

(Editor’s note: Bold added for emphasis)

You can read the entire assessment and view the complete document on the CBO website here.

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

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Chicago Public Pension Crisis Latest

Last Tuesday, I blogged about Chicago Mayor Rahm Emanuel’s attempt to address some of the City’s public pension woes via larger contributions by City employees and $50 million tax increases for five straight years- beginning next year and continuing through 2019- for Chicago property owners.

There’s been a lot of chatter regarding this proposal and other pension “reform” activity today. Karen Pierog reported on the Reuters website:

Legislation to ease funding shortfalls in two of Chicago’s four retirement systems is a modestly positive credit step but not a permanent fix, Moody’s Investors Service said on Monday

Moody’s said that if enacted into law, the measure would immediately reduce the unfunded liabilities in the two funds.

“However, we expect that the (liability) would then escalate for a number of years before declining. Accrued liabilities would exceed plan assets for years to come, and if annual investment returns fall short of the assumed 7.5 percent, the risk of plan insolvency may well reappear,” the credit rating agency said in a report…

After breezing through an Illinois House committee on April 2, the bill has stalled. Moody’s said that even if the bill makes it out of the legislature, Governor Pat Quinn must sign it. The law would then face potential challenges to its legality under the Illinois constitution, which prohibits the impairment of retirement benefits for public sector workers…

(Editor’s note: Bold added for emphasis)

So will the Illinois Governor and fellow Chicago Democrat sign off on Mayor Emanuel’s proposed legislation?

John Byrne and Monique Garcia reported on the Chicago Tribune website this afternoon:

Gov. Pat Quinn today came out against Mayor Rahm Emanuel’s plan to raise Chicago property taxes and cut retirement benefits as a way to shore up some of Chicago’s government worker pension systems.

The re-election seeking Democratic governor called the bill floating around Springfield “a sketch” that “kept changing by the hour” and blasted the property tax as a “lousy tax” because it is not based on the ability to pay…

“I don’t think that’s a good way to go,” Quinn said of hiking property taxes. “And I say it today and I’ll say it tomorrow, they’ve got to come up with a much better comprehensive approach to deal with this issue. But if they just think they are going to gouge property tax owners, no can do. We’re not going to go that way.”

(Editor’s note: Bold added for emphasis)

Now, as I pointed out in last week’s post about Chicago’s public pension crisis:

There’s still a state-required $600 million contribution due next year from the City to stabilize police and fire pension funds that this proposed property tax hike doesn’t address and has to be dealt with…

(Editor’s note: Bold added for emphasis)

Plus, I read the following this morning by Chacour Koop on the website of The State Journal-Register (Springfield):

After addressing Illinois’ own employee pension crisis, lawmakers now face an equally challenging task with the state’s cities, as mayors demand help with underfunded police and firefighter pensions before the growing cost “chokes” budgets and forces local tax increases.

The nine largest cities in Illinois after Chicago have a combined $1.5 billion in unfunded debt to public safety workers’ pension systems. Police and fire retirement funds for cities statewide have an average of just 55 percent of the money needed to meet current obligations to workers and retirees…

The problems — a history of underfunding, the expansion of job benefits and the prospect of crushing future payments — mirror those that Chicago Mayor Rahm Emanuel warned about when he asked the legislature for relief last week.

In 2016, state law requires cities to make required contribution increases — in some cases, more than an additional $1 million annually — so they’ll reach 90 percent funding by 2040. If they don’t, the state will begin doing it for them, diverting grant money now used by cities elsewhere directly into the pension funds…

(Editor’s note: Bold added for emphasis)

Just like the Illinois General Assembly- dominated by Democrats- barely passed legislation on December 3, 2013, that was touted as a “fix” for the state’s $100 billion public pension crisis (it isn’t), something tells me an accommodation may be reached with fellow Democrats running the City of Chicago so they don’t have to pay the full amount of the state-required $600 million contribution due next year to stabilize police and fire pension funds.

That goes for those large Illinois communities as well.

Watch all the back-patting go on should that “fix” materialize as well.

And the inevitable “blowback” down the road.

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

UPDATE: From Fran Spielman over on the Chicago Sun-Times website early Tuesday morning:

Mayor Rahm Emanuel and House Speaker Michael Madigan Monday stripped out controversial language from city pension legislation that had authorized the City Council to impose a property-tax hike, putting the stalled measure back on the fast-track at the state Capitol.

Madigan, D-Chicago, filed an amendment to Senate Bill 1922 after the House adjourned Monday without taking any action on the stalled legislation. Sources now expect the legislation to be voted upon as early as Tuesday.

(Editor’s note: Bold added for emphasis)

Sources:

Pierog, Karen. “UPDATE 1-Proposed Chicago pension changes positive step but no fix -Moody’s.” Reuters. 7 Apr. 2014. (http://www.reuters.com/article/2014/04/07/usa-chicago-moodys-idUSL2N0MZ1AP20140407). 7 Apr. 2014.

Byrne, John and Garcia, Monique. “Quinn blasts Emanuel’s property tax hike for pensions.” Chicago Tribune. 7 Apr. 2014. (http://www.chicagotribune.com/news/politics/clout/chi-quinn-blasts-emanuels-property-tax-hike-for-pensions-20140407,0,5432729.story). 7 Apr. 2014.

Koop, Chacour. “Illinois’ next pension issue: Police, firefighter funds.” Associated Press. 6 Apr. 2014. (http://www.sj-r.com/article/20140406/NEWS/140409562/-1/json/?tag=1). 7 Apr. 2014.

Spielman, Fran. “Analysis: Rahm’s pension bill revisions solve—and create—problems.” Chicago Sun-Times. 8 Apr. 2014. (http://politics.suntimes.com/article/chicago/analysis-rahm%E2%80%99s-pension-bill-revisions-solve%E2%80%94and-create%E2%80%94problems/mon-04072014-728pm). 8 Apr. 2014.

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Peter Schiff: No Recovery, Just An Illusion Of Prosperity

I first started paying attention to Euro Pacific Capital’s Peter Schiff just prior to picking up his book Crash Proof: How to Profit From the Coming Economic Collapse (now Crash Proof 2.0, second edition) shortly after its early 2007 release. While some of the calls he made in that controversial text are still playing out, others have already come to fruition.

Subsequently, Schiff has been given credit for correctly-calling the U.S. housing bubble and its burst, and the 2008 global economic crisis.

Being one of Survival And Prosperity’s “crash prophets,” his latest investment recommendations are chronicled on this blog. As are his economic analyses and forecasts as well.

Here’s a recent breakdown of what Schiff sees going on with the U.S. economy and larger financial system, courtesy of a March 21 commentary entitled “Debt and Taxes” that’s posted on his Euro Pacific Capital website:

The last few years have proven that there is no line Washington will not cross in order to keep bubbles from popping. Just 10 years ago many of the analysts now crowing about the perfect conditions would have been appalled by policies that have been implemented to create them. The Fed has held interest rates at zero for five consecutive years, it has purchased trillions of dollars of Treasury and mortgage-backed securities, and the Federal government has stimulated the economy through four consecutive trillion-dollar annual deficits. While these moves may once have been looked on as something shocking…now anything goes.

But the new monetary morality has nothing to do with virtue, and everything to do with necessity. It is no accident that the concept of “inflation” has experienced a dramatic makeover during the past few years. Traditionally, mainstream discussion treated inflation as a pestilence best vanquished by a strong economy and prudent bankers. Now it is widely seen as a pre-condition to economic health. Economists are making this bizarre argument not because it makes any sense, but because they have no other choice.

America is trying to borrow its way out of recession. We are creating debt now in order to push up prices and create the illusion of prosperity. To do this you must convince people that inflation is a good thing…even while they instinctively prefer low prices to high. But rising asset prices do little to help the underlying economy. That is why we have been stuck in what some economists are calling a “jobless recovery.” The real reason it’s jobless is because it’s not a real recovery! So while the current booms in stocks and condominiums have been gifts to financial speculators and the corporate elite, average Americans can only watch from the sidewalks as the parade passes them by. That’s why sales of Mercedes and Maseratis are setting record highs while Fords and Chevrolets sit on showroom floors. Rising prices to do not create jobs, increase savings or expand production. Instead all we get is debt, which at some point in the future must be repaid

(Editor’s note: Bold added for emphasis)

“Which at some point in the future must be repaid”

Good luck trying to get your average American in 2014 to wrap their head around that crucial concept.

Once again, I agree with Schiff’s observation of what is going on all around us.

“Illusion of prosperity” is a fine choice of words here, and makes sense that I find a fine economic blog by the same name good reading.

As certain as the “Big One” will eventually hit California, so must our nation’s “financial reckoning day” arrive for all this debt we’ve accrued for some short-term “prosperity.”

You can read Schiff’s entire commentary on the Euro Pacific Capital website here.

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

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