Posted on 03/10/2012 4:36:36 AM PST by blam
If Economy Is Recovering, Why Are U.S. Cities Going Bankrupt?
Interest-Rates / US Debt
Mar 09, 2012 - 01:16 PM
By: EWI
As pundits chatter about an economic recovery, 80 miles east of San Francisco you'll find a city (pop. 292,000) facing bankruptcy:
Stockton is on the verge of becoming the largest city in the United States to declare bankruptcy... San Francisco Chronicle (3/4)
Bloomberg reports (2/25) that it costs the city $175,000 just to get a consulting firm's fiscal evaluation. Management Partners issued a report which said:
...the city took on a large amount of debt in anticipation of ongoing growth that now exceeds the city's ability to pay. Compensation packages exceeded sustainable levels and the city assumed a significant liability for improved retiree health coverage without sufficient recurring revenues to cover growing costs... Stockton also has one of the nation's highest home foreclosure rates and has been called "Foreclosureville USA."
And Moody's just downgraded Stockton's rating to Ba2, which is two levels below investment grade.
In the same Bloomberg article, the California State Treasurer said "The reputational stain can bleed onto other local issuers and the state, and that can hurt taxpayers in the bond market."
Yet in recent months investors have been enamored with municipal bonds. Our December Financial Forecast said:
No matter how thick the storm clouds over state and city finances become, the belief in a bullet-proof municipal bond market just seems to grow. As the [chart below] shows, the ratio of AAA municipal bond yields to comparably-dated U.S. Treasury yields rose...in August.
...investors still believe munis are safe, but we'll stick with our bearish forecast...the evidence continues to mount that a change for the worse is underway. Deflation will only accentuate the impact of waning revenue streams, underfunded pension liabilities and bloated labor costs.
Financial Forecast, Dec. 2011
Other municipalities facing recent bankruptcy include:
Jefferson County, Alabama (home of Birmingham)
Central Falls, Rhode Island
Boise County, Idaho
Jefferson County, Alabama is the biggest U.S. municipality to face bankruptcy; Stockton is the biggest city.
In fact, as of December there were eleven municipal bankruptcies in 2011. Many other cities face extreme financial woes.
Economic recovery?
Look under the hood so you can see what kind of condition our economic engine is really in.
Prepare for what's ahead.
Yup. If the GOP wins and starts cutting = CRASH.
If the Dems win and don't start cutting = CRASH.
It does not get any plainer than that.
We're gonna CRASH. When is the only question unanswered.
There's No Peaceful Way Back From Here.
As a native Mississippian, yours chosen tagline is interesting, you from Mississippi?
The Old Dominion .... VA.
A few years ago we did Skyline Drive and it was eerie viewing what must have been seen in the 1860s from those vantage points. A really beautiful part of Virginia. We have grandchildren in Fairfax.
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