Thursday, February 4, 2010

Pennsylvania State Capital Mulls Bankruptcy

The threat of crashing governments spreads across the globe from Greece and Portugal, to California and San Francisco and even small cities such as Harrisburg, PA.

Bloomberg reports:
Harrisburg, the capital of Pennsylvania, will consider Chapter 9 bankruptcy protection along with tax increases and asset sales as options to address $68 million in debt service payments due this year, the chairwoman of a City Council committee said last night.

Every option, including tax and fee increases, bankruptcy and a state takeover through Pennsylvania’s Act 47 municipal oversight program will be considered, said Susan Brown-Wilson, chairwoman of the Budget and Finance Committee, which began a week of hearings last night to consider a 2010 spending plan.

The $68 million in debt service payments that Harrisburg faces in connection with the construction of a waste incinerator this year is four times what the city of 47,000 expects to raise through property taxes, and $4 million more than the city’s entire proposed operating budget.
It's all about arrogant politicians continuing to spend more and more, and a tax collection system based on ever increasing monetary inflation, a monetary inflation that simply doesn't exist at the present time.

How this all ends up will largely be in the hands of newly reconfirmed Fed chairman Ben Bernanke. Will he print huge sums of money to bail out the United States government, which will, as a byproduct, result in the bailout of states, cities and foreign governments, or will he hold tough, talk a good game, but let the house of cards collapse?

The kneejerk reaction of most of the hard money crowd is that Bernanke will print and print, and inflation will reach record levels. There is nothing that causes me to rule out this scenario. However, Bernanke has acted in an unpredictable fashion in the past (as evidence I submit the money supply (m2) slowdown during the summer of 2008 and the current money slowdown). It is fully possible that Bernanke will hold his money printing gun until things are in major decline. I am not brave enough to say that he will ignore all political pressure and not bailout the government at any point, but he may hold back longer than most expect.

Fortunately, there is generally plenty of time at the start of a Bernanke shift in policy to adjust investments accordingly. For long term gold holders, there is no reason to sell your positions, gold will come back in price. However, for gold traders., the most money is going to be made in the near term by trading gold from the downside.

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