Death Throes Abound: Local Governments Bankrupt
Congress added the Chapter 9 Bankruptcy law in 1937 to allow government entities the same protection individuals and companies receive in bankruptcy. Since that time, 640 government entities have declared Chapter 9.
That’s an average of 8.5 per YEAR over the last 75 years.
In the last 14 DAYS, three cities in California have declared Chapter 9.
Two of them, San Bernardino and Stockton, are the number one and number two largest municipal bankruptcies in US history.
In Pennsylvania (and other states), state law prevents municipalities from declaring Chapter 9 as doing so at the municipal level hurts the state’s overall credit rating forcing the state to potentially pay higher interest rates on state level borrowing.
However, last week the mayor of Scranton, PA, unilaterally lowered every city employees’ salary to the state minimum wage of $7.25/hour. According to one veteran fireman, who is part of two federal lawsuits filed this week against the city by the unions representing the city employees, firefighters’ pay is now less than the kid who makes $8.50/hr. working at an ice cream shop three blocks from his house. The mayor’s decision most likely broke several laws, but as he’s publicly stated, when the city has no money and banks refuse to lend it more, what is he supposed to pay them with? His answer: a 29% property tax hike this year that will grow to more than a 70% hike over the next two years – a staggering hike that the mayor hopes will give banks the confidence to lend the city money today.
Meanwhile, as a result of the Barclay’s / LIBOR scandal, everybody from unions, pension funds, investment funds, towns, cities, states, and the kitchen sink are lining up to sue all sorts of private (BofA, JPM, Barclay’s, etc.) and central banks (the Bank of England and the US Federal Reserve) for losses incurred as a result of the rigging (read: RACKETEERING) of
the world’s most important interest rate.
This while the Federal Reserve Bank of New York’s own internal documents show they KNEW about the scam all the way back to 2007!!! And yet, We the People are continuing to pay our debt at interest rates that were based on LIBOR – which now unequivocally has been shown to be a complete criminal scam – with some analysts already saying the cost of this scandal could be MORE than the ENTIRE 2008 financial crisis.
And, on top of that, PFGBest, a major commodity investment brokerage, has declared Chapter 7 bankruptcy after revealing $220 million of its customer’s money simply vanished. Worse yet, the CFTC, the US regulator in charge of overseeing PFGBest, has admitted the money has been missing for over two years. Yet, no one has gone to jail, nor has anyone at the CFTC said how they made such a disastrous “oversight” for two years running. In light of this – as an add-on to the MFGlobal breakdown of the same crime – how can anyone (meaning us) have any faith that their money is safe in ANY brokerage account, ANY retirement fund, ANY bank, ANY where???
Oh, and if you (or anyone you know) still thinks the “stock market” is a reflection of the economy or the overall health of the country, you’re an idiot. The New York Federal Reserve today admitted that since 1994 more than 80% of the gains in the S&P500 have been based on one thing: pre-FOMC announcement speculation. In other words, not corporate profits, not productivity gains, not new technologies, not anything other than… words and fear issued by the US Federal Reserve.
Lastly, as I have said for several years, at some point the failing and increasingly desperate US government will force us to lend the government any money we have left over after paying them taxes. All they have to do is change the tax law to do away with the 401k and make US Treasury purchases a mandatory part of all pensions and retirement plans. Most folks call me crazy when I say this. Meanwhile, the Left is increasingly calling the government to “tax the rich” as a solution. Well, it would seem some pretty well listened to Germans have decided this is exactly the ticket to get the EU out the mess they’re in. From Der Spiegel: “Euro-zone citizens in the highest income brackets ought to pay more taxes, or be forced to offer their government loans as a way to combat the ongoing euro crisis, a leading German economics research institute proposed in a new report issued on Wednesday. In order to stabilize the countries’ finances and to reduce sovereign debt, the states could go after those private assets, said Bach, who authored the DIW study.” Coming to America soon.
Finally, I continue to get it right as I have predicted 1.5% – 2.0% GDP growth, at BEST. Though today we’re seeing it get not better, but worse, with Goldman saying second quarter will be at 1.3%. With the government and the Fed completely out of monetary, fiscal, and political bullets and unable to fight the depression and continuing rot and corruption that is the US economy, I am making my call here and now. We will be in an official recession by 4th quarter of this year or 1st quarter 2013 at the latest, with things to get much worse than that in 2013 – 2014. Even if Romney wins. Count on it.
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