Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
United States Common Sense - 2017 - 23rd Jan 17
Is Dow 20,000 a Bridge Too Far? - 23rd Jan 17
The New Gold Rush Of 2017! - 23rd Jan 17
HBO HOMELAND Bet on HIllary Clinton Winning US Election and LOST - 23rd Jan 17
Stock Market New Highs For 2017? Yes, But When Do I Enter? - 22nd Jan 17
Active vs Passive Investing: And the Winner Is ... - 22nd Jan 17
The Epidemic of Bad Ideas - 22nd Jan 17
Gold Futures Prices Looking Bullish - 22nd Jan 17
Time for Crude Oil Price Drop below $50? - 21st Jan 17
AI and Robotics - We Are All Low-Skilled Workers Now - 21st Jan 17
The Trump RESET Starts on US Presidential Inauguration Day 2017 - What to Expect - 20th Jan 17
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

It’s “Chapter 66” as U.S. States Face De Facto Bankruptcy

Economics / US Debt Jul 11, 2010 - 02:02 PM GMT

By: Justice_Litle

Economics

Best Financial Markets Analysis ArticleA number of U.S. states are facing bankruptcy – in fact if not in name – with Illinois and California leading the way.

When an individual goes bankrupt in the United States, it’s usually a Chapter 7. When a business goes under, it’s Chapter 11. Farmers have a Chapter 12, and there is a more complex individual option known as Chapter 13.


But what do you call it when a U.S. state goes under? There’s no official “chapter” for that. But it’s looking more and more like there should be. Your humble editor proposes “Chapter 66,” in honor of a famed stretch of interstate.

U.S. Route 66, also known as “Will Rogers Highway,” “Main Street of America” and “the Mother Road,” was one of the original routes in the U.S. highway system. Opened up to cars in the year 1926, it originally ran 2,448 miles, from Chicago, Ill., to Los Angeles, Calif.

Route 66 was also a major path for westbound migrants, seeking relief from the “dust bowl” conditions of the 1930s.

It’s fitting that Illinois and California were the termination points of that iconic road, because “Chapter 66” is a dark and looming reality for those two states now – with a number of others on the same path. As America endures a sort of new financial dustbowl, the “state of the states” looks grim.

Amber Waves of Debt


The Globe and Mail describes the situation as “red ink, from sea to shining sea.”

“Forty-eight of 50 states face budget shortfalls this year,” they further report. “Many shortfalls amount to more than 20 percent of planned spending. The plunge in state tax revenue is the worst on record.”

(Budget shortfalls may be in the news, but it's not the only thing moving the market right now. If you’re looking for additional market analysis, sign up to read fellow editor Adam Lass' latest on financial market trends and investment commentary.)

How did we get to this sorry spot? By and large the same way Greece did… by spending money we didn’t have, and ignoring the consequences as long as possible.

Oh Boy, Illinois

Illinois is something of an idiot poster child for how bad things have gotten… and how tough the fix will be.

“It is getting worse every single day,” the Illinois state comptroller laments. “We are not paying bills for absolutely essential services. That is obscene.”

Illinois is facing a $12 billion deficit and a $5 billion budget shortfall. To add insult to injury, the state’s pension system is 50% underfunded by conservative estimates.

It has reached the point where the state has, quite literally, stopped paying bills. This means that jobs are getting cut, paychecks are getting delayed, and businesses are being shut down. There is simply – and again, quite literally – no more money.

Meanwhile, the state’s pension shortfall is no longer a potential catastrophe. It is a guaranteed one. According to Fitch, one of the big three ratings agencies, “Their pension is the most underfunded in the nation… they can’t grow their way out of this.”

So what is the Illinois governor’s response to all this? Why, spending more money of course. Staff members have reportedly received 43 salary increases at an average of 11.4%. And 40,000 union workers in Illinois have successfully rammed through a pay raise of 14%.

The politicians and union bosses running Illinois are not just rearranging deck chairs on the Titanic. They are cheerily giving themselves pay hikes even as the iceberg heads straight for them.

California Dreamin’

California is another poster child for impossible foolishness.

“People think we’re becoming a third world country,” says Arnella Sims, a Los Angeles County court reporter. “We are on the verge of system failure,” warns the executive director of the California Budget Project.

“California’s fiscal hole is now so large,” The Globe and Mail further adds, “that the state would have to liberate 168,000 prison inmates and permanently shutter 240 university and community college campuses to balance its budget in the fiscal year that begins July 1… Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.”

In an effort to fight back the tide, California governor Arnold Schwarzenegger – the “governator” – took a bold step last week, ordering 200,000 state workers to take a temporary pay reduction to $7.25 per hour, the federal minimum wage. The state comptroller balked.

It would be amusing if it weren’t so tragic. This is the kind of stuff that happens when you run out of money, courtesy of spending what you don’t have for years or even decades at a time.

Growth Won’t Do It

In the past, the prevailing belief was that economic growth would cover all sins. No matter how foolishly federal and local governments spent, no matter how recklessly the money was squandered, a tide of rising prosperity would ensure there would always be more. The great American growth engine would keep the coffers filled.

Sadly, it is exactly that attitude that brought us to where we are now. The terrible debt crisis that America faces was brought on precisely through a mixture of laziness and overconfidence. No matter how much was earned, the belief was always that things could be even better if we just leveraged up that prosperity by a factor of X.

Like the man who thinks that becoming a millionaire entitles him to spend like a billionaire, that mindset was always guaranteed to end in tears. And now we have reached that terrible point in the cycle where economic growth – the very thing we have always relied on in the past – is being choked off by mountainous levels of accumulated debt.

As Hunter Thompson once said: “The Edge... there is no honest way to explain it because the only people who really know where it is are the ones who have gone over.”

We were bound and determined to find the edge. And now we are in the process of going over. Be prepared.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source :http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-070910.html

By Justice Litle
http://www.taipanpublishinggroup.com/

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2010, Taipan Publishing Group

Justice_Litle Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

RUbinsky
13 Jul 10, 02:43
Year 55 before Christ!

Well in fact it doesn't matter US or EU. the problem is as much older as economics & humans:

"The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance." Marcus Tullius Cicero 106 BC - 43 BC


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife