Fiscal Policy

Peter Schiff: Layoffs, Falling GDP, And More QE Coming

I just got done reading a December 9 commentary piece by Euro Pacific Capital CEO Peter Schiff. Schiff, who correctly-called the U.S. housing bust and financial crisis last decade, pointed out that while the latest rosy jobs and GDP reports were gladly disseminated by the mainstream media, not-so-good news wasn’t shared. He observed:

In the weeks leading up to, and the days after, the recent GDP and jobs reports, a torrent of data releases came in that were almost universally awful. However, in our current era of journalistic lethargy, these reports have received almost no attention at all…

“Lethargy?” Some might argue “censorship” is a better fit, to support a particular agenda.

Anyway, Schiff went on to give a brief overview of the dismal economic data that wasn’t talked about by the MSM.

Upon completing this task, the “crash prophet” issued the following warning:

There is much in both the GDP and the Jobs Report that is dependent on forward-looking expectations. I believe that both reports are showing improvement because businesses are building inventory and hiring staff in anticipation of an economy that they believe will continue to improve. It’s like the Field of Dreams recovery, prepare for it and it will come. But I think businesses are following the false narrative, and ignoring, or rationalizing, the bad data as thoroughly as does the media. When they realize they were fooled by the hype, jobs will be lost, and GDP will fall.

Furthermore, the GDP and jobs data would certainly be far weaker if the Federal Reserve were not providing so much monetary support. Sure, they have discontinued the vast majority of the QE, but interest rates are still at zero percent. What would GDP or job growth look like if consumers, businesses, and the federal government were forced to pay anything that approaches the historically normal interest rates on our much greater than normal level of debt? My guess is that it will be awhile before we find out, as I believe that as the bloom comes off the recovery rose, the Fed will launch another round of QE before it gets around to raising interest rates.

(Editor’s note: Bold added for emphasis)

Layoffs, falling GDP, and more QE. Quite a different tune than what the “talking heads” on the financial news networks are singing these days.

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

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

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Illinois Named Worst-Run State In America In 2014

“‘We don’t have the time to mess around. We are in deep, deep trouble financially,’ [Illinois Governor-elect Bruce] Rauner told a meeting of the Illinois Farm Bureau at a downtown Chicago hotel. ‘The next 24 months are going to be rough. And I apologize. I ain’t going to be Mr. Popularity for a little while. That’s OK. Four years from now I think, though, everybody will appreciate what we did.’”

-Chicago Tribune website, December 8, 2014

Talk about lists you don’t want to be on. In 2012 and 2013, Illinois was the 3rd worst-run state in the annual best- and worst-run states in America survey conducted by New York City-based financial news and opinion organization 24/7 Wall St.

So how did the “Land of Lincoln” fare in 2014? From the 24/7 Wall St. website on December 3:

How well run is your state? Assessing a state’s management quality is hardly easy. The current economic climate and standard of living in any given state are not only the results of policy choices and developments that occurred in the last few years, but can also be affected by decisions made decades ago, and by forces outside a state’s control.

Each year, 24/7 Wall St. attempts to answer this question by surveying various aspects of each state. To determine how well states are managed, we examine key financial ratios, as well as social and economic outcomes. This year, North Dakota is the best-run state in the country for the third consecutive year, while Illinois replaced California as the worst-run state

(Editor’s note: Bold added for emphasis)

Ouch. Worst part is, the people who brought us this mess are the same ones still in charge, more or less. It will be interesting to see how much of a difference Governor-elect Rauner- who ran on the Republican ticket- can make in the Democrat-controlled state.

24/7 Wall St. went into more detail about my home state’s latest “honor.” From the piece:

Illinois is the worst-run state in the nation. Like many other low-ranked states, more people left Illinois than moved there. Illinois lost more than 137,000 residents due to migration between the middle of 2010 and July 2013. A poor housing market may partly explain the exodus. Median home values fell 16.2% between 2009 and 2013, the second largest drop nationwide. Illinois has extremely poor finances by many measures. Just 39.3% of Illinois’ pension liabilities were funded as of 2013, worse than any other state. Further, the state’s reserves are estimated at just 0.5% of its general fund expenditure, the second lowest reserves rate nationwide. Both Moody’s and S&P gave Illinois the worst credit ratings of any state, at A3 and A- respectively. According to Moody’s, the state’s rating reflects its low fund balances and high pension obligations, as well as its “chronic use of payment deferrals to manage operating fund cash.”

As for our neighbors, Indiana is ranked 28th and Wisconsin comes in at 26th in 2014- down from 19th and 21st- respectively.

That’s quite a hit (9 places) the Hoosiers took from last year. Wonder what’s behind the drop?

Curious as to where 24/7 Wall St. ranked your state in 2014? Head on over to their website here.

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

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U.S. National Debt Surpassed $18 Trillion On Black Friday

Our financial “house of cards” continues to grow more unstable. “Tyler Durden” reported over at the Zero Hedge website Monday:

On Black Friday, total outstanding US public debt just hit a new historic level which probably would be better associated with a red color: as of the last work day of November, total US public debt just surpassed $18 trillion for the first time, or $18,005,549,328,561.45 to be precise

(Editor’s note: Bold added for emphasis)

Durden’s source for this information was “The Debt to the Penny and Who Holds It” section of the TreasuryDirect website from the U.S. Department of the Treasury, Bureau of the Fiscal Service.

As of Tuesday night, that figure had actually been walked back to $17,988,139,701,976.27- to be precise.

I have no doubt it will cross the $18 trillion mark again soon enough.

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

Source:

Durden, Tyler. “Total US Debt Rises Over $18 Trillion; Up 70% Under Barack Obama.” Zero Hedge. 1 Dec. 2014. (http://www.zerohedge.com/news/2014-12-01/total-us-debt-rises-over-18-trillion). 2 Dec. 2014.

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Wednesday, December 3rd, 2014 Debt Crisis, Fiscal Policy No Comments

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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Global Economy Flashes Warning Signals

I’m picking up on a growing number of “bad vibes” about the global economy these days.

First, Rich Miller reported on the Bloomberg website Thursday about the findings of the latest Bloomberg Global Poll of international investors:

The world economy is in its worst shape in two years, with the euro area and emerging markets deteriorating and the danger of deflation rising, according to a Bloomberg Global Poll of international investors.

A plurality of 38 percent of those surveyed this week described the global economy as worsening, more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.

Much of the concern is again focused on the euro area: Almost two-thirds of those polled said its economy was weakening…

Europe isn’t the only source of concern in the global economy, according to the quarterly poll of 510 investors, traders and analysts who are Bloomberg subscribers. More than half of those contacted said conditions in the BRIC economies — Brazil, Russia, India and China — are getting worse, compared with 36 percent who said so in July.

(Editor: Bold added for emphasis)

Granted, it’s just a poll. But there’s also this from British Prime Minister David Cameron in a piece he penned that was published on The Guardian (UK) website Sunday:

Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.

As I met world leaders at the G20 in Brisbane, the problems were plain to see. The eurozone is teetering on the brink of a possible third recession, with high unemployment, falling growth and the real risk of falling prices too. Emerging markets, which were the driver of growth in the early stages of the recovery, are now slowing down. Despite the progress in Bali, global trade talks have stalled while the epidemic of Ebola, conflict in the Middle East and Russia’s illegal actions in Ukraine are all adding a dangerous backdrop of instability and uncertainty…

(Editor’s note: Bold added for emphasis)

Cameron added the following, which I thought was pretty funny (disturbing?):

When we faced similar problems in recent years, too many politicians offered easy answers, thinking we could spend, borrow and tax our way to prosperity. Those were the wrong answers then; they are the wrong answers now. We are not going to repeat the mistakes of the past…

(Editor’s note: Bold added for emphasis)

Sound like any country you know?

Finally, exacerbating fears about global economic health was the following “shock” announcement. Mitsuru Obe and Eleanor Warnock reported on The Wall Street Journal website this morning:

Japan Falls Into Recession

Japan’s economy shrank for a second quarter in a row, after a sales-tax increase took the steam out of Prime Minister Shinzo Abe ’s bid to turn Japan into a global model of revival.

Mr. Abe, who has sought to revive the world’s third-largest economy after two mostly sluggish decades, is set to announce this week that he will delay plans to raise the nation’s sales tax next year and call elections in December…

“Two mostly sluggish decades”

Some really bright financial-types suspect Japan’s so-called “zombie economy” is what’s ultimately in store for America. While I have no doubt about a coming U.S. economic crash, I remain somewhat more optimistic for the country’s prospects upon emerging from the coming carnage.

Stay tuned…

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

Sources:

Cameron, David. “David Cameron: Red lights are flashing on the global economy.” The Guardian. 16 Nov. 2014. (http://www.theguardian.com/commentisfree/2014/nov/16/red-lights-global-economy-david-cameron). 17 Nov. 2014.

Miller, Rich. “World Economy Worst in Two Years, Europe Darkening, Deflation Lurking: Global Investor Poll.” Bloomberg.com. 13 Nov. 2014. (http://www.bloomberg.com/news/2014-11-13/world-outlook-darkening-as-89-in-poll-see-europe-deflation-risk.html). 17 Nov. 2014.

Obe, Mitsuru and Warnock, Eleanor. “Japan Falls Into Recession.” The Wall Street Journal. 17 Nov. 2014. (http://online.wsj.com/articles/japan-falls-into-recession-1416182404). 17 Nov. 2014.

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2015 Cook County Budget Holds Line On Taxes, Fines, And Fees- For Now

Cook County residents dodged a bullet this time around.

John Byrne and Hal Dardick reported on the Chicago Tribune website Friday:

Cook County Board President Toni Preckwinkle on Friday won easy approval for her $4 billion 2015 budget proposal that includes no new taxes, fines or fees

(Editor’s note: Bold added for emphasis)

For now. Byrne and Dardick added:

Preckwinkle earlier this year warned that the 2016 budget will be far more difficult to balance because debt payments will grow and the county will need to pay $144 million more into the county workers’ retirement system if she secures the pension fund changes she seeks from the General Assembly…

(Editor’s note: Bold added for emphasis)

Regular readers of Survival And Prosperity know I suspect those “new taxes, fines, or fees” are coming soon. I wrote back on May 22:

Last week, I blogged about the possibility of property and/or sales taxes going up soon in Cook County, Illinois. Dave McKinney and Brian Slodysko reported on the Chicago Sun-Times website on May 13 the hikes might occur as part of a pension “reform” bill.

Hal Dardick and Monique Garcia added on the Chicago Tribune website tonight:

Cook County Board President Toni Preckwinkle hit Springfield Thursday to try to build support for changes to the county pension plan that she says would halt its ongoing decline toward insolvency.

She met with Senate President John Cullerton House Speaker Michael Madigan, both Chicago Democrats, and also Republican legislative leaders. “I think she’s got a good chance to pass this bill,” Madigan said afterward…

Although Preckwinkle has not identified how she would pay for her plan, it calls for the county to put $144 million a year into the pension fund. If funded with property taxes, that would cost the average homeowner up to $65 more a year, starting in 2017, according to one internal county document the Tribune obtained.

Preckwinkle, however, said Wednesday that she has closed even larger budget gaps through cuts and other, smaller scale tax and fee increases without raising property taxes — while also lowering the county sales tax by a half-cent on the dollar…

(Editor’s note: Bold added for emphasis)

Yet, McKinney and Slodysko wrote last week:

County officials do not believe they can cut enough from the budget to cover the cost, the source said…

(Editor’s note: Bold added for emphasis)

Only a matter of time now before those hikes kick in. As I also noted in that May post:

What’s that line I keep repeating on this blog?

Higher fees, fines, and taxes. Less government services.

As much as I hate saying it, that’s what Chicago and Cook County residents should be preparing themselves for down the road.

I’d say that probably applies to all Americans, come to think of it.

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

Source:

Byrne, John and Dardick, Hal. “Preckwinkle wins easy approval of $4 billion budget.” Chicago Tribune. 14 Nov. 2014. (http://www.chicagotribune.com/news/ct-cook-county-budget-met-1115-20141114-story.html). 17 Nov. 2014.

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The Civic Federation Analyzes Chicago’s FY2015 Budget

The last time I talked 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 back on March 4, when they proposed a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. But yesterday, the group released a new report on the City of Chicago’s proposed budget for fiscal year 2015. From their press release Monday:

Civic Federation Supports FY2015 Chicago Budget

Recent Progress Threatened by Pension Funding Crisis, Borrowing for Operations

In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed FY2015 operating budget of $7.3 billion but expressed deep concern for how the City will manage rising pension costs and debt service payments in future years. The full 101-page analysis is available here.

The FY2015 budget closes a $297.3 million deficit with reasonable structural changes including targeted tax and fee increases, vacancy eliminations and other operational efficiencies. The budget also reflects significant actions toward long-term stability including the 2014 pension reform law for the City’s Municipal and Laborers’ pension funds and the continued phase out of the City’s retiree health care subsidy and planned transition of most retirees to coverage under the federal Affordable Care Act.

“Mayor Emanuel and his team are continuing to make the reasonable changes and bold decisions necessary to stabilize Chicago’s finances,” said Laurence Msall, president of the Civic Federation. “Two issues, however, threaten to erase all recent progress: the pension funding crisis and the administration’s continued use of borrowing for operations through the issuance of refunding bonds.”

Landmark pension reforms were enacted in June 2014, but only for two of the City’s four pension funds. The City’s Police and Fire pension funds remain dangerously close to running out of funds with market value funded ratios of only 27.0% and 31.7% respectively in FY2013. The Illinois General Assembly passed legislation in 2010 that mandates a sharp $550 million increase in contributions to the Police and Fire funds. This change, even without considering increased contributions to the City’s Municipal and Laborers’ funds, would require a significant increase in the City’s property tax levy, crippling cuts to City services, or both. The Mayor, City Council and State legislators must work together to create a reform framework for the Police and Fire funds that will stabilize the funds at an affordable cost to taxpayers. The Civic Federation also recommends that the City study ways to consolidate its pension funds, including the possibility of merging its Police and Fire funds with suburban and downstate public safety funds.

Over the last three fiscal years, the City of Chicago reduced its annual debt service payments by refunding bonds that are due to mature and extending the life of these bonds for an additional 30 years, a practice referred to as “scoop and toss.” This practice dramatically increases the cost of providing government services. It also could threaten the City’s ability to issue future debt by filling the out years of the City’s debt service schedule with previously issued bonds. The Civic Federation urges the City to develop a strategy for ending this costly and unsustainable practice.

The Federation’s full report also discusses the creation of the City Council Office of Financial Analysis in 2013. The office was intended to give aldermen access to the independent information and analysis they need to be effective stewards of the City’s finances. A delay in fully implementing the office means aldermen will not have access to this resource before they vote on the FY2015 budget.

You can read the 101-page report entitled City of Chicago FY2015 Proposed Budget: Analysis and Recommendations on The Civic Federation’s website here.

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

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Tuesday, November 4th, 2014 Bonds, Borrowing, Fiscal Policy, Government No Comments

Chicago Faces $297 Million Budget Shortfall In 2015, $588 Million Deficit By 2017

I’ve been wanting to blog about the latest City of Chicago annual financial analysis for some time now. This afternoon I’m finally getting that chance. From Fran Spielman (who’s done a terrific job breaking those analyses down the past couple years I’ve been paying attention to them) on the Chicago Sun-Times website back in August:

Mayor Rahm Emanuel has ruled out a pre-election increase in property or sales taxes, but he’ll have to find another way to close a $297.3 million budget gap that assumes the Illinois General Assembly will lift the pension hammer hanging over Chicago.

State law requires the city to make a $550 million contribution to shore up police and fire pension funds that have assets to cover just 30 and 24 percent of their respective liabilities.

If Emanuel chooses to fund the payment with property taxes, the city’s levy must be raised in 2015 so bills issued the following year reflect the increase.

Instead of including that payment in the financial analysis now used as a substitute for Chicago’s preliminary budget, the mayor left it out, assuming he will get both revenue and reform before the payment is due

(Editor’s note: Bold added for emphasis)

$297.3 million budget shortfall for Chicago in 2015- assuming the city gets “relief” from that State of Illinois-mandated $550 million pension fund contribution.

From what I’ve read, that looks to be a big assumption.

Still, the projected 2015 budget gap that’s being advertised by City Hall is significantly rosier than a year ago (big election coming up in February 2015 you know).

I blogged back on August 1, 2013:

The latest financial analysis is out, and the budget gap in 2014 is projected to be $339 million. Still crappy, but a lot better than what could be in store for the “Windy City” by 2015. Hal Dardick reported on the Chicago Tribune website this morning:

The day of financial reckoning for Chicago is not far off, with the city budget shortfall expected to near a record $1 billion in 2015 if major changes are not made to the government worker pension systems, city officials said Wednesday.

That stark assessment, contained in the annual financial analysis prepared by Mayor Rahm Emanuel’s top budget officials, overshadowed the fact that the city needs to close an expected $339 million budget gap predicted for next year.

(Editor’s note: Bold added for emphasis)

Returning to that Sun-Times piece from this August, Spielman added:

As for the more manageable, $297.3 million gap, sales and property taxes are off the table. But [Budget Director Alexandra] Holt refused to rule out other tax and fee hikes after exhausting further cost-cutting that might include layoffs

Last year’s financial analysis projected a $338.7 million shortfall that would balloon to $994.7 million in 2015 and $1.15 billion in 2016 without a painful mix of employee concessions and new revenues. This year’s version takes the 2017 shortfall down to $587.7 million, but only if the mayor’s risky assumptions are correct.

(Editor’s note: Bold added for emphasis)

That classic Benny Hill skit about why one shouldn’t assume things comes to mind right now.

Okay. Looking at the actual 2014 annual financial analysis on my laptop screen right now, I see that $297.3 million budget shortfall projected for Chicago in 2015, a $430.2 million gap in 2016, and that $587.7 million deficit in 2017 that Spielman mentioned.

The trend is definitely not Rahm’s and the City’s friend in this instance.

Here’s what I see going down for the “Windy City.” The Machine will mobilize as many kissing cousins (Democrats elsewhere in the state) as it can to get Mayor Emanuel his much-desired pension “reform.” Basically “kicking the can down the road.” If full reform isn’t achieved, perhaps partial “relief”?.

Of course, the City of Chicago will still have those snowballing budget shortfalls to contend with. At first, I anticipate a lot of stupid spending still going on, with only some belt-tightening and layoffs here and there (“Kiss Your Clout’s Ass” Day soon to be a much celebrated event?). And fees, fines, and taxes will be heading up (but not property and sales taxes initially). But I suspect as Chicago’s “day of reckoning” gets closer, all these measures will be intensified.

Think major cost-cutting in conjunction with a much stronger attempt to increase incoming revenues.

Like my forecast for the rest of the nation- regrettably, I see things getting a lot worse before they get better again.

You can view the entire 2014 City of Chicago Annual Financial Analysis on the City of Chicago website here (.pdf format).

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

Source:

Spielman, Fran. “City budget puts off day of reckoning until after election.” Chicago Sun-Times. 1 Aug. 2014. (http://politics.suntimes.com/article/chicago/city-budget-puts-day-reckoning-until-after-election/fri-08012014-1210am). 23 Sep. 2014.

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Jim Rogers On Coming Fed Moves, Investing Opportunities

I just got finished reading an interview of well-known investor, author, and financial commentator Jim Rogers by The Economic Times (India) a short time ago. Published yesterday, the former investing partner of George Soros shares his thoughts on a number of topics, including:

• Investing opportunities during wartime (commodities, including crude oil, gold)
• Federal Reserve coming moves (continued tightening, then full-reverse)
• Crude oil price movement (higher and in a holding pattern)
• Gold price movement (suspected buying opportunity in next year or two)
• Other investment opportunities (industrial metals, natural gas)

Lots of good insights dragged out of Mr. Rogers by the Times crew, which you can read all about on their website here.

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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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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Illinois House Speaker Michael Madigan Vows To Get State Income Tax Hike Made Permanent

The Illinois House of Representatives approved a $35.7 billion state spending plan yesterday which didn’t factor in funds from a 2011 temporary income tax hike being made permanently available. I surmised Tuesday:

So does this mean Illinois Democrats have abandoned their push to make the temporary income tax hike permanent? I doubt it. This is “Madiganistan,” after all. And what Mike wants, Mike gets.

I wouldn’t be surprised to see some sort of maneuvering being carried out to eventually land these funds. Perhaps another “temporary” increase in such taxes sometime after the November 2014 election, with buzz words such as “fiscal emergency” and “for the children” being used to justify the measure?

Monique Garcia, Ray Long, and Maura Zurick reported on the Chicago Tribune website last night:

Speaker Michael Madigan acknowledged the budget proposal would leave unfinished business and vowed to spend the summer and fall working to get the income tax hike made permanent to provide more money to run state government. The approach also ensures the governor’s race will continue to be framed up by opposite positions on a tax hike Democratic Gov. Pat Quinn and Republican challenger Bruce Rauner have staked out.

“My expectation is that this issue will be taken into the general election and I think the governor will be supportive of an extension of the income tax increase through the general election,” Madigan said. “My expectation is that Mr. Rauner will be against. So you’ll have a clear line of division going into the election. And people can make their choice.”

(Editor’s note: Bold added for emphasis)

Hmmm. Should Governor Quinn be re-elected, one more buzz word I suspect Illinoisans might hear before legislative action is taken by the Democrats to make the income tax hike permanent is “mandate,” as in “Illinois voters have given us a mandate to make the temporary income tax hike permanent during this fiscal emergency. Remember- it’s for the children!”

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

Source:

Garcia, Monique, Long, Ray and Zurick, Maura. “State budget would put off tough decisions until after election.” Chicago Tribune. 27 May 2014. (http://www.chicagotribune.com/news/politics/clout/chi-state-budget-would-put-off-tough-decisions-until-after-election-20140527,0,6506902.story). 28 May 2014.

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Christopher E. Hill, Editor
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