Wednesday, November 17, 2010

The Country Is Looking Rough...........

State of the Union
It is not just other large economies that we need to monitor, but closer to home, the individual states in the U.S., most of which are hopelessly under water.
With the reelection of Jerry Brown as governor, Californians have made a clear statement that they want a Big Brother government to fix what ails. But given that what ails is a budget deficit anticipated to be more than $25 billion over the next 15 months, layering on yet more government programs – and the taxes to pay for same – it only assures that the flight of businesses and the largest taxpayers from the formerly golden state continues apace and escalates.
Looking a bit like a deer in the headlights, when asked about his post-election plans to deal with the deficits, Brown came forth with a factual albeit not very confidence building statement, "Not a lot of people have many good ideas on how to deal with it."
And it’s not just the states that are beset with intractable problems, but the cities as well. This just in from our own Alex Daley…
While the states can play certain games and jigger their accounting, I would look to the cities before the states for the next wave of problems. Bond issues are drying up post the Harrisburg, PA mess a few weeks back.
A lot of cities are in trouble: Detroit ($710M deficit! Including $450M for this year), Oakland, Miami, Harrisburg, Norfolk VA, San Diego ($30M deficit), San Jose, Vegas, Phoenix, Reno ($20M deficit, $5.2M shortfall for 2010), Chicago ($520M deficit!!), Yonkers, Baltimore ($121M deficit), Honolulu, NYC ($4.9B!!!! deficit into 2011) – all are in imminent danger of missing debt payments and heading into default.
Norfolk and others with small per-capita shortfalls might be able to pull out something with an assessment. As the budget timelines run out for most of these places, expect a LOT more like Harrisburg.
Remarkably, so far, the mainstream is almost completely ignoring the muni-credit crunch. This is a big problem, and it’s about to get a lot worse.
As the states and cities go belly up, will the federal government sit on its hands… or reach once more for the bottomless wallet?
Regardless, it might be worth perusing your tax-free money market holdings to better understand just what you own.
Vigilance remains the watchword for the day… and for the year. We are far from out of the woods.

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