Debt Crisis

State Of Illinois’ Unpaid Bills Could Spike To $15 Billion By July

Bad news about the State of Illinois’ finances keeps rolling in. Monique Garcia reported on the website of the Chicago Tribune this morning:

The state has a record stack of unpaid bills that’s expected to hit $15 billion by July if nothing is done, and it must fork over interest when it’s late paying them. Putting a hard dollar figure on those interest costs is difficult, however…

The potential price tag is high enough that Senate leaders from both parties are pushing a plan to borrow billions of dollars to help whittle down the bill backlog and limit interest payments…

Under the plan being pushed by Democratic and Republican leaders in the Senate, Illinois would borrow $7 billion over seven years to pay down the bill backlog and bring the payment cycle closer to 30 days…

(Editor’s note: Bold added for emphasis)

The Tribune article comes after Governor Bruce Rauner pointed out in his State of the State address last Wednesday:

We haven’t had a full year budget of some kind in a year-and-a-half- and we haven’t had a state budget that is truly balanced in decades. We have more than $11 billion in unpaid bills, a $130 billion unfunded pension liability, and the worst credit rating in the nation. We have the 5th highest overall tax burden and one of the lowest rates of job creation of any state

(Editor’s note: Bold added for emphasis)

Garcia’s piece took a close look at the interest payments associated with the bill backlog debacle, which you can read about here on the Tribune site.

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

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Reagan Budget Director David Stockman: ‘We Are Heading Into An Absolute Fiscal Bloodbath’

I’ m pretty sure I’ve never brought up David Stockman before on this blog, but what he’s warning about the nation’s finances is worth mentioning tonight. Stockman is a former two-term Congressman from Michigan, Director of the Office of Management and Budget under President Reagan, Wall Street veteran, and author. On Wednesday, he appeared on the FOX Business Channel show Mornings with Maria and talked about President Trump and the national debt. Stockman warned viewers:

We are heading into an absolute fiscal bloodbath. As the CBO put out yesterday, there’s $10 trillion of more debt built into the next decade, even before one dime of tax cuts from Trump or infrastructure spending or increasing defense like he wants to. And so what I suggest is that we have an even more absurd fiscal proposition from Donald Trump today than we did back in 1981 when we tried to cut taxes, increase defense substantially, and balance the budget. They are going to be in a crisis within weeks. The debt ceiling was suspended arbitrarily until March 15. When it comes back into effect there will be $20 trillion of debt. And before they can do anything on all of this stimulus they’re talking about they’re going to have to raise the debt ceiling and where are the votes going to come from? It’s going to make 2011, if you remember the debt ceiling crisis in 2011, look like a Sunday school picnic. We’re in bad shape.


“David Stockman: We are heading into an absolute fiscal bloodbath”
FOX Business Channel Video

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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Jim Rogers On U.S. Stocks, Dollar, Markets, And Economy Under Trump

Well-known investor, author, and financial commentator Jim Rogers speculated about the economy under President Trump in a MarketWatch piece published this afternoon. The former investing partner of George Soros in the legendary Quantum Fund talked about:

-U.S. stocks- “He very much wants a trade war. And if that happens, sell everything”

-U.S. dollar- “This is a good time to add dollars.” According to reporter Sue Chang, Rogers believes “the greenback will continue to rise through this year into 2018.”

-U.S. financial markets/economy- Chang added:

The one certainty that the markets can bet on, according to Rogers, will be more chaos under Trump, which may coincide with an economic turmoil on a global scale.

“We are overdue for a crisis,” he said, reiterating his steadfast view that debt levels across the world, including in the U.S. and China, continue to swell while interest rates are at historic lows…

(Editor’s note: Bold added for emphasis)

Regular readers of Survival And Prosperity know that last summer Jim Rogers revealed he was basically short U.S. equities and long the dollar.

There was also this warning from the Singapore-based investor in May:

The world is facing some very complicated and difficult times. Once you become knowledgeable, you’re going to get very worried, which you should, and then you might get prepared, because not all of us are going to survive what’s coming in the next few years. I hope I survive, I hope everybody listening to this survives. But it’s going to be a very, very damaging and difficult time. So be worried. Be prepared

(Editor’s note: Bold added for emphasis)

Head on over to the MarketWatch site here to read the entire article.

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

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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Ron Paul: ‘We’ll Have A Downturn And Then That Will Be A Real Challenge For The New Administration’

Former Texas congressman and two-time Republican presidential candidate Ron Paul was on the CNBC TV show Futures Now last week speculating about the economy under the new Trump administration. Here’s what Paul thought about President Trump’s plans for the beginning of his term:

Well, it’s hard to dissect as many people have discovered because some days I hear one message and other days I hear a different message. But what I think comes through generally speaking is that there’s going to be a lot more spending. It doesn’t sound like he’s bashful about spending. He doesn’t seem to be very concerned about the deficit. And with this massive increase in infrastructure as well as the military, I think there’s going to be a lot more spending. I think the debt is going to be much bigger. I think that it will put more pressure on the Fed. I think there will be more monetizing of debt. And everybody has to think about what generally comes about when the economy is manipulated by the Federal Reserve- you have good times, and then you have to have bad times to compensate for the artificially good time. So we’ll have a downturn and then that will be a real challenge for the new administration.

(Editor’s note: Bold added for emphasis)


“Ron Paul: A ‘downturn’ will happen under Trump”
CNBC Video

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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Illinois ‘Grand Bargain’ Legislation Includes 32 Percent Personal Income Tax Hike

Illinois taxpayers may get hit with a significant income tax hike pretty soon. John O’Connor of the Associated Press reported Sunday on The State Journal-Register website:

If last week’s action is any indication, the Democratic and Republican leaders of the Illinois Senate are serious about attempting to bust the state’s 18-month budget deadlock – quickly…

Promising to act on a package by month’s end, they introduced 13 measures Wednesday that included non-budget-related sweeteners for both sides. By Thursday, they had been rapidly assigned public committee hearings…

Here’s a look at other major pieces of the legislation some in the Capitol have nicknamed the “grand bargain”:

* Income tax increase: The personal income tax would jump from 3.75 percent to 4.95 percent, a plan to generate $4.1 billion a year. With spending cuts, Democrats argue, that could eliminate what the governor’s office estimates will be a $5.3 billion deficit on the June 30 end of the fiscal year…

(Editor’s note: Bold added for emphasis)

The proposed 32 percent income tax hike is not a sure thing, as O’Connor noted:

The outstanding question is if a Senate-approved deal would ultimately pass muster with Democratic House Speaker Michael Madigan, who has refused to entertain Rauner’s pro-business agenda as part of budget talks…

Six years ago, the 3 percent personal income tax rate jumped to 5 percent until 2015, when the rate rolled back to the current 3.75 percent.

Like I just suggested to Chicago taxpayers in the previous post, Illinois taxpayers might want to take heed of what’s potentially coming down the pipeline.

Other pieces of legislation include $7 billion more borrowing to pay off overdue bills (now at $10.7 billion), which you can read about on the The State Journal-Register site here.

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

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Moody’s On Chicago Public Schools Crisis: Consider Tax Levy, Pension Contribution Stoppage, Or Bankruptcy

“Chicago and New York rank at the bottom of a new analysis of fiscal strength based primarily on data from 2015 financial reports issued by the cities themselves. The analysis includes 116 U.S. cities with populations greater than 200,000.

Chicago’s position at the bottom of the ranking is no surprise to anyone who follows municipal finance. The Windy City has become a poster child for financial mismanagement, having suffered a series of ratings downgrades in recent years. Aside from having thin reserves and large volumes of outstanding debt, Chicago is notorious for its underfunded pension plans…”

The Fiscal Times, January 9, 2107

Moody’s Investors Service recently weighed in on Chicago’s well-publicized financial crisis. Last Thursday its Global Credit Research division published the following on the Moody’s website:

While unfunded pension liabilities will continue weighing on the City of Chicago’s (Ba1 negative) credit profile, plans to significantly increase contributions with higher taxes is a favorable departure from prior funding practices. However, the liquidity crisis at Chicago Public Schools (CPS — B3 negative) is worsening amid a continued budget impasse at the state level, Moody’s Investors Service says in two new research reports released today…

In “City of Chicago: Frequently Asked Questions,” Moody’s says despite the city’s expanding economy, revenue growth, and healthy liquidity, its pension burden is likely to remain among the highest of any rated, major local government for many years.

“While Chicago’s recent tax increases will provide revenue to significantly increase pension funding, the city’s unfunded pension liabilities exceed seven times its revenue and are projected to grow for at least 15 more years,” says Matt Butler, Vice President of Moody’s…

(Editor’s note: Bold added for emphasis)

The well-known credit rating agency added this about the city’s public school system:

In a separate report, “Chicago Public Schools: Frequently Asked Questions,” Moody’s states CPS’ fiscal pressures are intensifying due to depletion of reserves following years of imbalanced operations, unrealistic budget assumptions, and escalating pension costs…

Moody’s says CPS could consider more difficult options to address its finances should the State of Illinois (Baa2 negative) be unable or unwilling to provide additional relief: levy for debt service on GO alternate revenue bonds, stop making employer pension contributions, or seek state authorization to file for Chapter 9 bankruptcy…

(Editor’s note: Bold added for emphasis)

MarketWatch news editor Rachel Koning Beals expanded on Moody’s suggestions for dealing with the CPS situation. She wrote Saturday:

Moody’s has a revised shortlist of painful fixes for the public school system in Chicago.

One idea is to approve another increasingly politically unpopular property-tax levy to pay off debt, as the nation’s third-largest school district just issued another batch of high-interest bonds.

The second idea from the credit-ratings agency is to skip a pension payment to the Chicago Teachers’ Pension Fund, which would come just months after the district and its teacher‘s union hammered out an 11th-hour contract to avoid a second labor strike in a span of four years.

And last resort? Just declare bankruptcy already

(Editor’s note: Bold added for emphasis)

Who’s the say the City will act on any of these suggestions (at least, right away)? That being said, Chicago taxpayers and CPS employees/retirees might want to take heed of all this.

Head on over to the Moody’s Investors Service website here to read the entire release from the Global Credit Research division. It ain’t pretty.

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

Source:

Koning Beals, Rachel. “Maybe Chicago schools should declare bankruptcy and get it over with, says Moody’s.” MarketWatch. 14 Jan. 2017. (http://www.marketwatch.com/story/maybe-chicago-schools-should-declare-bankruptcy-and-get-it-over-with-says-moodys-2017-01-13). 16 Jan. 2017.

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Chicago Tribune Letter: ‘Chicago, And Its Surrounding Areas, Have Become Hell on Earth’

This morning I headed over to the Chicago Tribune website to see what’s cooking locally. On their homepage was a “story” link with the following headline:

“Letter: I’m leaving Chicago and I’m never coming back”

Figuring this should make some “entertaining” reading while I finished my coffee, I checked out the proclamation. The author sure didn’t pull any punches. Here’s a snippet:

I’ve come to understand that Chicago, and its surrounding areas, have become Hell on Earth for any thinking person with a modicum of self-respect.

The caustic combination of corrupt politicians with nothing but contempt for the public; a police force so broken down in spirit it visibly resents interaction with even law-abiding citizens; a criminal underclass empowered by the incessant drone of liberal rhetoric wandering the streets posing clear and present danger to everyone around them; and the enablers, who are everywhere, to say nothing of the ugly, decaying infrastructure, poor economy and joyless entertainment and leisure opportunities – it is for these reasons I have made the decision to disconnect forever…

(Editor’s note: Bold added for emphasis)

As regular readers of Survival And Prosperity know, I am one of those who left Chicago (Northwest Side) only three-and-a-half years ago due to concerns over increasing government mismanagement, crime, and costs of living- in no particular order. Besides, even though I really liked the neighborhood I had lived in for eight years, it was time for a new pad and home prices were just too damn high!

My girlfriend and I did what was right for us at the time and in advance of what we suspect lies ahead. But Chicago is still a great city with fantastic people (minus the criminal element), so much so not only do I understand why one might still choose to reside there, but even I won’t go so far as to proclaim “I’m never coming back.”

I remain optimistic about the long-term prospects for the “Windy City.” That being said, I do believe conditions in the city will erode before improving again. For those dead set on remaining in town, please do yourself a favor and take a good, hard look at your financial and personal safety capabilities for successfully navigating any “storm” that may lie ahead. For example, how do your finances look with the real prospect of future tax hits down the road?

More later. And to read that entire letter sent to the Chicago Tribune, head on over to their website here.

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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