DETROIT—This city is back on the brink of insolvency, just months after signing an agreement with state officials designed to shore up its shaky finances.Detroit is only the beginning.
Some city and state leaders believe Detroit has now reached a breaking point, where it must decide whether to accept a state-appointed emergency manager to run the government or file for bankruptcy to prevent a default on more than $8 billion in bonds.
For years, Detroit has borrowed millions to fund its operations, unable to find ways to boost revenues. Financial mismanagement stemming from political corruption, a hard-hit housing market and a massive loss in population—25% of all city residents left from 2000 to 2010—were all factors in its fiscal woes.
Some other cities and states have perhaps a couple of years of breathing room, but the numbers show there is no way out for them down the road, unless Bernanke prints so much money that the cities and states will be able to pay off their debts with devalued dollars---i.e. major price inflation that will hurt many across the country.
Illinois us now sending out auditors to shake down out of state artists that sell their wares at festivals and mistakenly believe that only those sales made at such festivals are taxable. Believe it or not, if you have a presence at such an event, you are considered to have an outlet in the state for the balance of the year and are therefore required to collect sales tax on all subsequent transactions to Illinois residents. They cannot be far behind Detroit.
ReplyDeleteYou write, other cities and states have perhaps a couple of years of breathing room, but the numbers show there is no way out for them down the road.
ReplyDeleteHow true, municipal debt as well as rampant financial speculation were two of the leading causes of the Great Depression.
The failure of neoliberal finance is at hand as Aggregate Credit, AGG, topping out, as Mortgage Backed Bonds, MBB, Junk Bonds, JNK, Leveraged Buyouts, PSP, Senior Bank Loans, BKLN, International Treasury Bonds, BWX, and Emerging Market Bonds, EMB, are falling lower in value as is seen in the combined chart. Distressed investments, such as those in Fidelity Investments FAGIX, which are the backbone of the US Federal Reserve's balance sheet, are turning lower in value. The Fed’s QE1, was based upon a trade-out of money good US Treasuries, EDV, TLT, for distressed investments held in the Too Big To Fail Banks, RWW, and the Regional Banks, KRE. It was the TARP facility, that gave seigniorage, that is moneyness, to World Banks, IXG, and it was the acquisition of Maiden Lane investments that gave seigniorage to JP Morgan, JPM, yet these are at their former highs or have turned lower. And the chart of Municipal Bonds, MUB, and High Yield Municipal Bonds, HYD, shows that they are now topping out. Yet the closed end fund Michigan Municipal Bonds, MIW, and Pennsylvania Municipal Bonds, EIP, have turned this week lower.