Monday, March 25, 2013

Recession What Recession?

The City of Stockton is headed to bankruptcy court. The real question arises, is the State of California responsible for debts or long term contracts entered into by the cities? Retirement benefits come to mind.

Chicago is closing 54 schools in face of a 1 billion dollar deficit. Is the money saved going to be spent on students in other schools as has been suggested? (Insert howling laughter here) On top of that, the state of Illinois is broke; their retirement fund is 100 billion underfunded. A state can’t file for bankruptcy, but that is no big deal. You can’t sue them to get your money either. So if (more likely when) Illinois reneges on its debts, it’s the note holder that has the problem. You’ll probably get your money given time, lots of it. Mississippi discharged a 100 year old debt a few years back.

Detroit is on the verge of Bankruptcy with no solution in sight. Obama claims the recession ended two years ago. He saved the auto industry, but it couldn’t have been in Detroit. Being successful in that city is measured by how many bags of recyclable cans you have tied to your shopping cart. Of course a municipal-bankruptcy filing by Detroit would be the largest such filing in U.S. history.

These three cities also have other problems. Major city infrastructure funding has been cut drastically. Police, fire and other government services have been cut to the bone. Downsizing the labor force will not cut fixed costs. The cities are committed to future fixed cost spending as far as 20 years out. And a lot of it is funding for retirement. When a city implements draconian measures to cut costs, the inhabitants start voting with their feet.

The recession is over and things are getting better? When’s the last time we had 3 cities on the verge of bankruptcy? (Hint: not in my lifetime) These problems are serious and are being swept under the rug. You must admit the phrase “We’re not out of the woods yet,” sounds a tad better than “We’re in the grips of a Great Depression.” No need to panic the sheeple feeding on Ben's freshly printed green dollars.


Anonymous said...

No worries about Stockton, they have always been a dump. If San Francisco faults, or defaults, then that is worthy of a news story.

Sheepie feeding on Ben's greens? Nice analogy, but too peaceful a scene for me. With 16T in debt, It is more like we sheepies are walking the plank, and every time we get to the end, they tack on another board.

AIM said...

There is a big bad deflationary depression hidden under all of this printing, debt monetizing, bond buying, intervention and rule changing.

It's gonna hurt big time when it finally pops up and says peek-a-boo.

Jim in San Marcos said...


I see no deflation anywhere. If housing prices go back to 1995 levels, I would not consider that deflation, but maybe deflation of a bubble.

Remember, in the Great Depression 90 percent of all the bank money was lost, and this included housing.

In this crash, no bank money was lost, more was printed. Instead of new home owners making monthly payments for 30 years, the loans were paid off in cash by the Fed when the owners walked away. A tremendous amount of printed money has been introduced to the economy.

My gage to this whole mess is a silver quarter. The price of gas in 1964 when I was young and in my prime, was 20 cents a gallon. So for four quarters you could buy 5 gallons of gas. Those same four silver quarters today will buy six gallons of gas.

I do agree that a day of reckoning is in the future, and it is not going away no matter what we do. Most will not be prepared for it.

My advice, trade the dollars in the mattress for gold and silver. You're not trying to make money, just preserve what you have.