Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14
The Ebola Outbreak: U.S. Sponsored Bioterror? - 24th Aug 14
Instigating War in Europe - Understanding Ukraine in 15 Minutes - 24th Aug 14
LNG Catalysts About to Hand You the investment Opportunity of the Decade - 24th Aug 14
Another Interesting Stock Market Juncture - 24th Aug 14
The West Set Up the ISIS Endgame - 24th Aug 14
Gold And Silver Low Prices Are NOT The Reason To Own Precious Metals - 24th Aug 14
U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - 23rd Aug 14
Inflation vs the Deflationary Straw Man - 23rd Aug 14
U.S. Interest Rate Rise to Occur Mid-2015 According to Fed's Williams - 23rd Aug 14
Bitcoin Price Continuation of a Move up - 23rd Aug 14
Gold and Crude Oil Price on the Verge of Something Big - Hero's Rarely Win - 23rd Aug 14
Oxaloacetate Feeds and GROWS Brain Cells - Alzheimers Cure? - 23rd Aug 14
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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

© 2005-2014 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

Free Report - Financial Markets 2014