Deficits

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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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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Wisconsin Cuts Taxes While Illinois Looks To Make 2011 ‘Temporary’ Tax Hikes Permanent

Throughout the years, I’ve known/met a number of Illinois residents who can’t stand Wisconsin. Mostly from the Chicago area, they equate Wisconsin and its residents as being unsophisticated clowns.

I wonder if they haven’t noticed by now that the only circus around is in the “Land of Lincoln.”

While Illinois falls deeper into an economic abyss (public pension fix my butt), Wisconsin seems to have gotten their finances under control and look to be on the path to prosperity.

So much so they’re cutting taxes. Again.

Patrick Marley and Jason Stein reported on the Milwaukee Journal Sentinel website Monday afternoon:

Lowering taxes for the third time in less than a year, Gov. Scott Walker signed his $541 million tax cut bill in a ceremony Monday at a farm in Cecil as he travels through central and northern Wisconsin touting it.

Speaking at Horsens Homestead Farms, about 35 miles northwest of Green Bay, Walker called it a great day for Wisconsin taxpayers and a sign of the state’s shifting financial fortunes in recent years.

“Now, instead of billion dollar budget deficits, we have a surplus — and today that money is on its way to the workers, parents, seniors, property owners, veterans, job creators and others. You deserve to keep as much of your hard-earned money as possible — because after all, it is your money,” Walker said.

With growing tax collections now expected to give the state a $1 billion budget surplus in June 2015, Walker’s tax proposal will cut property and income taxes for families and businesses, and zero out all income taxes for manufacturers in the state.

Though the state’s tax revenue is increasing, GOP lawmakers and Walker are trimming state spending slightly for the next three years rather than increasing it

(Editor’s note: Italics added for emphasis)

Meanwhile, across the Cheddar Curtain in Illinois there’s this on the website of The State Journal-Register (Springfield). Doug Finke reported Friday:

Hundreds of employees would be laid off, state facilities would be closed and thousands of prison inmates released without supervision, state agency directors told senators Friday during a hearing to gauge the effect of possibly severe spending cuts next year.

During a more than three-hour joint hearing of the two Senate Appropriations committees, agency after agency warned of drastic consequences should they be forced to cut their current budgets by 20 percent.

“There would be extreme consequences for the economy across Illinois,” warned Ben Winick of Gov. Pat Quinn’s budget office. “Over a dozen state facilities would have to close. Thousands of state employees would have to be laid off.”

The hearing occurred just days before Quinn is scheduled to finally deliver his budget outline for the fiscal year that starts July 1…

Translated? Illinois residents, this is what will happen if you don’t support making the Democrat-led temporary 67 percent personal income tax hike and 46 percent corporate income tax hike implemented in January 2011 permanent next year.

I hear Governor Quinn will be delivering his budget plan tomorrow.

Instead of ridiculing Wisconsin, us FIBs (F***ing Illinois Bastards as we’re known by up there) might want to start emulating our neighbors to the north in certain respects before we completely destroy Illinois.

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

Sources:

Marley, Patrick and Stein, Jacob. “Scott Walker signs tax cut legislation.” Milwaukee Journal Sentinel. 24 Mar. 2014. (http://www.jsonline.com/news/statepolitics/scott-walker-set-to-sign-tax-cut-legislation-b99231851z1-251936261.html). 24 Mar. 2014.

Finke, Doug. “State agencies outline cuts if forced to make 20% reductions.” The State Journal-Register. 21 Mar. 2014. (http://www.sj-r.com/article/20140321/NEWS/140329821). 24 Mar. 2014.

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State Of Illinois Deficit Grew By $49 Million Over Last Fiscal Year

The deficit for the State of Illinois is approaching $45 billion. And tucked inside a news release on Illinois Comptroller Judy Baar Topinka’s website yesterday was the following which showed the deficit widened over the last fiscal year. From “Topinka announces earliest state financial report release since 2006”:

The State of Illinois’ net position was reported as a deficit of $44.799 billion as of June 30, 2013. That represents a $49 million decrease in net position compared to the deficit of $44.750 billion at June 30, 2012. The State’s assets increased $3.762 billion from the prior year, offset by an increase in liabilities of $3.811 billion. The increases in liabilities resulted mainly from increases in the State’s net pension obligation of $1.720 billion and net other postemployment benefit obligations of $1.753 billion

You can read the entire news release on the State of Illinois Comptroller’s website here.

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

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The Civic Federation Proposes Plan For Achieving Long-Term Fiscal Sustainability In Illinois

The last time I blogged about The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois, was right before the holidays.

The Civic Federation is in the headlines again these days for proposing a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. From a March 3 press release:

In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive plan for achieving long-term fiscal sustainability for the State of Illinois. The five-year plan would fully pay down the State’s $5.4 billion backlog of unpaid bills while gradually reducing income tax rates by 20%, broadening the tax base and building a reserve fund as protection against future economic downturns…

$5.4 billion? That’s a lot of bills.

One part of this financial rescue plan will likely raise the eyebrows of certain Illinois residents. From the press release:

3. Broaden Income Tax Base to Include Federally Taxable Amounts of Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income and one of 27 that exclude all federally taxable Social Security income. The State should broaden its income tax base to create greater equity among taxpayers and facilitate the gradual rollback of the income tax rates. The broader base will also ensure greater long-term sustainability of the State’s resources by accessing a growing portion of the Illinois economy…

You can read the entire press release here, as well as find a link to The Civic Federation’s 50-page report State of Illinois FY2015 Budget Roadmap: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly.

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

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2013 Nobel Prize Winner Warns Of Possible Recession Next Year

Time to talk money. How many readers know who Eugene Fama is? Dr. Fama is a finance professor at the nearby University of Chicago. He is widely recognized as the “father of modern finance,” a champion of efficient markets, and the intellectual father of today’s index fund industry.

In October, it was announced that Fama was being awarded the 2013 Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, along with Lars Peter Hansen and “crash prophet” Robert Shiller.

Anyway, the reason I bring Dr. Fama up is because the distinguished professor is warning of a possible recession in 2014- one that he believes will be global. Ilze Filks and Mia Shanley reported last Saturday on the Reuters website:

One of the three Americans who won this year’s Nobel prize for economics said bloated public deficits on both sides of the Atlantic meant that recession remained a real risk for 2014.

Eugene Fama, who shares this year’s 8 million crown ($1.2 million) prize with Robert Shiller and Lars Peter Hansen, said on Saturday that highly indebted governments in the United States and Europe posed a constant threat to the global economy.

“There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves,” he told Reuters in the snow-covered Swedish capital, where he will receive his prize on Tuesday.

“If there is another recession, it is going to be worldwide.”

(Editor’s note: Italics added for emphasis)

One more thing about “Mr. Efficient Markets.” Shawn Tully of Fortune magazine reported last Friday:

The mere use of the term “bubble” makes Fama see red. He says asset price bubbles simply don’t exist. Fama argues that when stocks crash — as in the dotcom crash or the cataclysm of 2008 — it is caused by a perfectly logical fear that a depression might follow.

Keep the dream alive for Main Street and Wall Street, and the financial house of cards can remain standing longer than most “doomsayers” suspect.

Still, the charade can only be pulled off for so long.

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

Sources:

Filks, Ilze and Shanley, Mia. “Nobel economics winner Fama says risk of global recession in 2014.” Reuters. 7 Dec. 2013. (http://www.reuters.com/article/2013/12/07/us-sweden-nobel-idUSBRE9B605C20131207). 12 Dec. 2013.

Tully, Shawn. “What can you learn from Mr. Efficient Markets now?” Fortune. 6 Dec. 2013. (http://money.cnn.com/2013/12/06/investing/eugene-fama-markets.pr.fortune/). 12 Dec. 2013.

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Chicago’s Financial Condition Deteriorated More Than Many Other Major U.S. Cities From FY2007-2011

It’s been some time since I last blogged about The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois. Back on February 5, 2013, the Federation’s Institute for Illinois’ Fiscal Sustainability released an analysis showing the State of Illinois was on track to accumulate nearly $22 billion in unpaid bills by FY2018 “unless action is taken to curb rising pension costs and plan for increases in the Medicaid program.”

Illinois ended fiscal year 2013 with an estimated $6.1 billion in unpaid bills.

These days, attention is back on The Civic Federation again for a recent analysis focusing on the City of Chicago. From a November 8 press release:

A report released today by the Civic Federation uses nine indicators of financial condition to measure the relative financial performance of Chicago and 12 other major U.S. cities from FY2007 to FY2011. Of the cities analyzed, only Boston and Detroit consistently performed worse than Chicago by these metrics during the five-year period that encompasses the Great Recession and slow recovery. The full 56-page report is available at www.civicfed.org.

“Chicago’s relative financial performance during this period was defined by many of the same challenges it faces today including a structural deficit and high debt levels,” said Civic Federation President Laurence Msall. “These threats continue to handicap Chicago’s performance as many other cities were somewhat better equipped to weather the 2008 financial downturn and resulting economic challenges.”

A majority of the cities experienced deteriorating financial condition during the five-year period, likely due to the Great Recession and its aftermath. However, Chicago fared worse than most of the other cities. In addition to Chicago, the 12 other major U.S. cities analyzed were Baltimore, Boston, Columbus, Detroit, Houston, Kansas City (MO), Los Angeles, New York, Philadelphia, Phoenix, Pittsburgh and Seattle. These cities were also the focus of fiscal analysis by the Pew Charitable Trusts’ Philadelphia Research Initiative, with the exception of Houston which the Federation substituted for Atlanta after a change in Atlanta’s fiscal year led to inconsistent analysis.

(Editor’s note: Italics added for emphasis)

“Only Boston and Detroit consistently performed worse than Chicago by these metrics during the five-year period that encompasses the Great Recession and slow recovery.”

Great. Just great.

You can read the entire press release here, and the study here on the Federation’s website.

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

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Thoughts On Chicago Mayor Rahm Emanuel’s Proposed 2014 Budget

Yesterday, Chicago Mayor Rahm Emanuel unveiled his proposed 2014 budget. From a press release posted on the City of Chicago website:

Mayor Rahm Emanuel today presented the proposed 2014 budget to the City Council, an $8.7 billion budget that, for the third consecutive year, balances the City’s finances without introducing new property, sales or gasoline taxes.

In 2011, the City faced a projected deficit of $790 million for 2014. In the last two budgets, that structural deficit has been cut by more than half, to $339 million…

The City began the 2014 budget process with a projected deficit of $338.7 million. The gap was closed through spending reforms and cuts, and improved revenue growth, including: $40 million through reduced technology, equipment and telecom costs; $26 million in healthcare savings; $101 million in additional revenue growth and children’s safety zones; $35 million from sweeping aging revenue accounts and grant funds; $34 million in targeted revenue enhancements; $18.7 million through proper allocation of costs to enterprise and grant funds; and $53.4 million from 2013 surplus captured through spending controls.

Last year around this time I offered up my thoughts about the proposed City budget for 2013. Using that as a backdrop:

• Mayor Emanuel proposed an $8.3 billion budget last year. For 2014, it’s risen to $8.7 billion.
• A big deal was made over no “new taxes, fines or fees” in the 2013 budget. The same can’t be said for 2014, where no “new property, sales or gasoline taxes” is the best Emanuel can do. $34.2 million in tax, fee, and fine increases are included in the proposed budget according to the Chicago Tribune’s Hal Dardick.
• To help plug a projected $369 million deficit last year, the City “identified” $45 million in additional revenue. I noted that was just projected tax revenue on real property transfer, hotel, sales, and electricity taxes until the end of September 2013 (I wonder how much of that projected revenue was actually realized?). For 2014, “the gap was closed” with $101 million in (projected) additional revenue. Time will tell if this is really accomplished.

Even if the projected deficit of $338.7 million can be eradicated, Chicago is still in big financial trouble. I blogged backed on August 7:

The “Windy City” faces a number of financial hurdles in the coming years…

• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014.

You can read the entire City of Chicago press release about Mayor Emanuel’s proposed budget for 2014 on the city’s website here.

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

Source:

Dardick, Hal. “Emanuel uses ‘boatload of ways’ to balance budget.” Chicago Tribune. 22 Oct. 2013. (http://www.chicagotribune.com/news/local/ct-met-rahm-emanuel-budget-1023-20131023,0,744928.story). 24 Oct. 2013.

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Chicago Mayor Rahm Emanuel Wants More Time To Fix Chicago’s Public Pension Crisis

“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.”

-Monica Davey and Mary Williams Walsh, The New York Times, August 5, 2013

Yesterday I blogged about the Illinois public pension crisis. Today, it’s Chicago.

Hal Dardick and Rick Pearson reported on the Chicago Tribune website late last night:

Faced with the prospect of a major tax hike or severe service cuts just as he stands for re-election a year from now, Mayor Rahm Emanuel told the Tribune Wednesday that his formula for fixing the financially out-of-whack government worker pension system requires “reform, revenue and time.”

Dardick and Pearson noted that Chicago’s mayor didn’t offer any specifics about his formula, and just had this to say:

“I believe, push this back, allow us the time, the foresight, to work through the issues,” Emanuel said. The state requirements have “got everybody focused. Now, (the unions should) come to the table and work with us, push the time out,” he said.

Sounds to me that Mayor Emanuel is trying to “kick the can down the road” on the city’s public pension crisis- something his predecessors did and which got the City of Chicago into trouble in the first place.

I can understand why Emanuel is looking for time. As things stand right now, Chicago’s “financial reckoning day” looks to be fast approaching. I blogged backed on August 5:

The “Windy City” faces a number of financial hurdles in the coming years:

• A projected budget gap of $339 million next year
• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014

It’s one thing to stall and “pass the buck” onto a future administration. It’s another to be granted more time and actually work to resolve this pension problem (if it can even done at this point).

If the State of Illinois “concedes” on the funding requirement, I would hope Rahm Emanuel is in that second camp. Although, plenty of other observers would count him in the first one.

Stay tuned…

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

Source:

Dardick, Hal and Pearson, Rick. “Emanuel trying to buy time as city’s pension crisis escalates.” Chicago Tribune. 25 Sep. 2013. (http://www.chicagotribune.com/news/chi-chicago-budget-reckoning-promo-20130925,0,6194998.story). 26 Sep. 2013.

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Jim Rogers: ‘Possible That Gold Will Go To Between 900 and 1,000’

On September 18, investor, author, and financial commentator Jim Rogers chatted with host Lauren Lyster of Yahoo! Finance’s The Daily Ticker. Gold was one of the topics they discussed. From their exchange:

LYSTER: What about gold? Because you were dead on. You said gold could go to 1,200, gold could go to 1,100, it’s a 12-year bull market, that’s not normal. It did exactly that. It went to about 1,200. Now it’s above 13. Where do you think it goes though? Because you also said that it really needed to shake out all the faithful diehards. That it can go as low as 900- a 50 percent correction wouldn’t bee abnormal. So do you think gold still has a lot lower to go?
ROGERS: Well, I’m delighted you remember. My goodness. Wow, I’m very impressed. Yes, I have not bought gold- yet. I mean, I bought a little bit when it was at 1,200, in case. But, in my view, it’s likely, it’s probable, it’s even, well let’s say, possible that gold will go to between 900 and 1,000. If it does, if it does, I hope I’m smart enough to buy a lot more.

Lyster went on to say:

A lot of the bearish predictions that had people buying gold haven’t played out and don’t seem to be on the horizon anymore.

Regrettably, it sounds like Lyster has been partaking in the Kool-Aid being doled out by the politicians and central bankers.

Based on a waffling “recovery” marked by a federal funds rate still near zero, years of trillion-dollar federal budget deficits, a $16.7 trillion federal borrowing limit being reached, significant part-time as opposed to full-time national job creation, an unemployment rate falling because Americans are giving up looking for work, and the Fed’s refusal to take away the punch bowl just yet and sustain the massive money printing going on, one could argue that gold’s fundamentals not only remain intact, but keep getting stronger.

“Bearish predictions… haven’t played out and don’t seem to be on the horizon anymore.” Hogwash. The threats to our economy and larger financial system that made themselves known during the “Panic of ’08 still linger on 5 years later and have never been resolved- only papered-over for the time being.


“Gold Rallies on Fed’s Taper Delay: Jim Rogers Forecasts a Drop to $900 Ahead”
Yahoo! Finance Video

By Christopher E. Hill, Editor
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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Moody’s Analytics: All U.S. States Except Delaware Have Escaped Recession Risk

Just when I thought I had read/seen it all today comes this from Lisa Lambert on the Reuters website late this afternoon:

All U.S. states except for Delaware have escaped the possibility of falling back into recession, as they reap the rewards of strong private-sector employment and a burgeoning energy sector, according to an analysis released on Tuesday.

Moody’s Analytics, which tracks state and metropolitan economies, added Illinois, Wisconsin and Alabama to its list of states in recovery. That left Delaware alone in its “at risk of recession” category.

Moody’s Analytics, a unit of Moody’s evaluates economics and financial risk around the world. A separate unit, the credit ratings agency Moody’s Investors Service, recently said the outlook for states is now stable, after five years of being negative.

With the U.S. economy being kept afloat by massive federal government intervention, trillion dollar budget deficits, an almost zero percent federal funds rate, attempted reinflating of the housing and financial markets, $85 billion worth of long-term bonds being purchased by the Fed each and every month, job creation dominated by part-time positions, and highly-questionable government reporting of economic data to boot, one could easily argue another recession- measured using “official” figures- is a real and constant threat to the United States.

After I read that recession assessment by Moody’s Analytics, the following sarcastic line from “Gunny” Highway (actor Clint Eastwood) in the 1986 film Heartbreak Ridge came to mind:

Well, I’ll sleep a lot better at night knowing that sir.

Have a good evening everyone.

Source:

Lambert, Lisa. “Recession risk gone in all U.S. states but 1: Moody’s Analytics.” Reuters. 10 Sep. 2013. (http://www.reuters.com/article/2013/09/10/us-usa-states-economies-idUSBRE9891BG20130910). 10 Sep. 2013.

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Quote For The Week

“We don’t have an urgent deficit crisis.”

-U.S. President Barack Obama, speaking at a town hall at the State University of New York-Binghamton last Friday, August 23, 2013

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

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Monday, August 26th, 2013 Deficits, Fiscal Policy, Government, Spending No Comments

Chicagoans: Should They Stay Or Should They Go?

These days, there are times living out here in the northwest suburbs of Chicago that I feel like Henry Hill (played by actor Ray Liotta) at the end of the 1990 film Goodfellas.

No, not that part about Henry living the rest of his life as a “schnook.”

Rather, where previously I could step out my door adjacent to a major city artery and things were generally hopping, this suburban subdivision I now live in can be pretty dull at times (which isn’t entirely a bad thing).

Thank god the Italian food around here isn’t nearly as bad as what the other Hill encountered.

Grazie a Dio.

However, I was just reminded this morning of one of the big reasons why my girlfriend and I moved out of the city of Chicago while reading the popular Chicago police blog Second City Cop. “016 Up For Grabs” discussed 5 people getting shot in less than 2 days in the Chicago Police Department’s 16th District, something that kind of hit home considering I used to live in that same district.

Now, it’s not like crime never happened in 016 before. It’s the big city, and the 80 percent of good, law-abiding people are packed shoulder-to-shoulder with the 10 percent of human refuse and remaining 10 percent who play by the rules because they’re forced to. I can recall walking into a convenience store down the street from me just minutes after it had been robbed, having a “welcome to the new home” plant stolen from my building’s entryway shortly after it had been delivered, and finding a big metal Coleman cooler stolen from my underground parking garage space- all within weeks after moving in to my old Northwest Side neighborhood, one of the “nicer” ones in the city.

Funny thing about that cooler. It used to store bottles of antifreeze, windshield washer fluid, engine oil, and more- none of which was taken even though it was inside the cooler. But plenty of which splashed around and/or leaked in that container.

Something tells me those bastards got pretty ill later drinking from those beer bottles/cans because they were too lazy to clean out that cooler before using it.

Karma’s a bitch. Or here’s hoping, right?

Still, armed with “intel” from Second City Cop and other alternative media with a local focus (Chicago mainstream media was hit-or-miss on reporting criminal activity in my neighborhood), Chicago-related research/blog material, and my own local observations, I realized that the 16th District had not only become “grittier” as it concerned crime, but it was occurring at a time when police protection in my area was significantly-reduced from when I first moved in.

Coupled with the City of Chicago’s financial woes that are finally coming home to roost? Chicagoans don’t need to be brain surgeons to figure this one out. Like I’ve been saying for some time now, more fees/fines/taxes and less government services seem to be on the horizon.

I suspect less police protection will be part of that equation, unless Chicago taxpayers pony up more of their hard-earned cash to at least keep the “thin blue line” intact.

And boy is it thin these days.

But I suspect increased revenues will be directed at Chicago’s public employee pension crisis and City Hall’s pet projects (where’s my park, dang it) before it’s steered over to the CPD and public safety.

In other words, Chicagoans had better be prepared to keep hearing “crime is down” for a long time.

In the meantime, City Hall still can’t comprehend that losing Downtown to all the wilding will see the City’s bottom line hit hard as word gets out.

Judging by recent MSM coverage nationwide about such criminal activity here, the word’s already out.

I wonder how hard it is to fudge tourism numbers?

While I would have preferred to have stayed in Chicago, and in particular, our old or the adjacent neighborhood in the CPD’s 16th District, considering what I see is in store for the area and our particular circumstances, my girlfriend and I made the right decision to move when and where we did.

Then again, that might not be the “correct” decision for other Chicagoans. Consider this. We didn’t have much invested in our old location. We didn’t own it (could have, but we steered clear of buying anything until home prices came back down to earth somewhat), we weren’t required to live within the city limits as required by a municipal job, we don’t have kids in the local schools, family and friends didn’t live down the street, the list goes on. So it wasn’t all too painful for us to just pick up and leave when our latest lease ran out.

The same can’t be said for others, and I respect that.

At least I, for one, have given you enough notice of what to expect down the road.

Prepare accordingly.

Is the “Second City” going to get worse? Could get “Third World” when all is said and done, and the ongoing financial storm finally blows completely through.

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

Source:

SCC. “016 Up For Grabs.” Second City Cop. 13 Aug. 2013. (http://secondcitycop.blogspot.com/2013/08/016-up-for-grabs.html). 13 Aug. 2013.

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City Of Chicago Annual Financial Analysis 2013

Since the beginning of the month I’ve been bringing up the latest release of the City of Chicago Annual Financial Analysis and its dismal budget deficit projections.

Initially, I couldn’t find the study on the City of Chicago website. I did eventually locate it, and in case you’re interested in looking over the 98-page document, you can read it here (.pdf format).

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

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The New York Times Spotlights Chicago’s Public Pension Crisis

This morning on The New York Times website, the most popular article in their U.S. section being e-mailed is the following:

“Chicago Sees Pension Crisis Drawing Near”

On August 5, Monica Davey and Mary Williams Walsh wrote:

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.

To be fair, Mayor Emanuel shouldn’t shoulder the blame for this fiasco. The public pension crisis in Chicago is something his administration inherited. Davey and Williams Walsh pointed out:

Chicago’s troubles, experts say, were years in the making. They are the result of city contributions under a state-authorized formula that failed to accumulate nearly enough money, two economic downturns in the 2000s that led to heavy investment losses, and an impasse in the State Capitol despite urgent calls to cut costs of the state’s own pension system. Illinois, which has the most underfunded state pension system in the nation, controls Chicago’s benefit and funding levels.

The “Windy City” faces a number of financial hurdles in the coming years:

• A projected budget gap of $339 million next year
• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014

Speaking of the CPS pension crisis, from their website under “FY13 Budget” in the “Pensions” section:

Like most public entities, the growing cost of employee pensions is the biggest financial challenge facing Chicago Public Schools (CPS). By FY2014 under existing legislation, CPS will be required to spend $534 million (more than 10 percent of its operating budget) on contributions to the Chicago Teachers Pension Fund (CTPF). This represents an increase of $338 million from the FY2013 contribution, the last year of legislative pension relief. Even at this contribution level, CTPF will still have a funded ratio below 60 percent, considered weak by many observers, and an unfunded liability of approximately $8 billion. Without reform from the state, CPS’s required annual contributions will continue to grow, and by FY 2040 will exceed $1 billion annually. At that point, the funded ratio is still estimated only to be 66 percent. Significant reform is essential to ensure that pension benefits continue to be available to CPS retirees.

(Editor’s note: Italics added for emphasis)

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

Source:

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). 7 Aug. 2013.

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Christopher E. Hill, Editor
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