While the private economy has done a good job adjusting during the recession and paving the way for the growth we see now, we can’t say the same holds true for the government. In fact, as fiscally irresponsible as the US government has been, the next big shoe to drop for the US may be the revealed insolvency of some of its big states.
Already, we hear the “B” word being tossed around. A San Diego County panel – faced with $2.2 billion in unfunded pension liabilities and $1.3 billion in unfunded health care liabilities – recommended, among a number of other possible actions, filing for bankruptcy. According to Grant’s Interest Rate Observer, four major American cities (Miami, Detroit, Los Angeles and Harrisburg) have all hinted at the same this year.
The big states are even worse. The Economist reports on Illinois: “By 2018, Illinois will be paying $14 billion a year in benefits, equal to more than a third of the state’s revenue, compared with $6.5 billion now.”
Plugging those kinds of gaps means getting creative with new forms of skullduggery. For instance, the State of New York, with its $9 billion budget deficit, is looking at a proposal to borrow $6 billion from its state pension fund in order to make a $6 billion payment due to that same pension fund. Yeah, you read that right.
The trials of Illinois and New York are not isolated incidences, either. Grant’s quotes from the Center on Budget and Policy Priorities: “At least 46 states face or have faced shortfalls for the upcoming fiscal year (FY 2011, which will begin on July 1 in most states). These come on top of the large shortfalls that 48 states faced in their current budgets (FY 2010).”
Yet incredibly – or maybe not – Moody’s maintains that “the credit profile of the US state and local government is very strong.” Huh? What are they looking at? That’s ridiculous. Why anyone should take what these ratings agencies say seriously is beyond me.
In any event, what I see happening is a great big bailout from Uncle Sam, which itself is broke – bleeding astronomical deficits and in hock for record amounts.
In order to do that, the government will simply print what money it needs. We all know what happens then. The value of the dollar goes south.
To protect your wealth, stay with things, as opposed to paper, like bonds. Own hard assets, things like gold and oil. Own the stocks of companies growing fast enough to beat inflation. And don’t be afraid to put your money outside of the US.
Chris Mayerfor The Daily Reckoning
Chris Mayer is managing editor of the Capital and Crisis and Mayer's Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012, Chris released his newest book World Right Side Up: Investing Across Six Continents.
Results 1 – 10 of about 1,540,000 for Argentinean economics.
Party until it pops.
The solution to macro economic events is predicated on a major change in structure that sees the answers come from bottom-up events such as the monetization of gold by the grass roots. Real time digital gold backed currency is a new marriage of the measure and the weight. Give thanks for both.
I truly enjoy how you write continue the truly amazing posts… Nothing beats a great read and awesome information… Thanks!
When it comes to investing in small companies with explosive growth potential, there is one number investors tend to be fixated on: share price. But as Jonas Elmerraji explains, there is another number that is far more important when it comes to discovering quality investments on the cheap. Read on...
A lot of people are buying to a lot of bad ideas right now, based on faulty logic or blindly following a political agenda. But if you ask the right questions, you can expose these ideas, as well as the people who support them, and show how silly (and stupid) they really are. Thankfully, one man has been doing just that for decades. Doug French explains...
The world is obsessed with smartphones. Most people can't go ten minutes without checking their phone for status updates on Facebook or Twitter or any number of apps they happen to have. And while Facebook's stock continues to soar, it's only natural to wonder, "What's the best way to play this mobile revolution?" Greg Guenthner explains...
One of the most heated political battles raging across the western world is debt versus austerity. In the U.S. this debate reached it's apex in 2011 when the U.S. credit rating was downgraded by Standard and Poor's. In today's essay, however, Chris Mayer throws the debate out the window, explaining why he thinks a U.S. debt crisis will never happen...
Believe it or not, more capital for a company doesn't necessarily mean better returns for investors. In fact, in a recent study that dug through data from more than 200 acquisitions going back to 2006, they found a "sweet spot" for the most likely acquisition targets. And it's lower than you think. Matthew Milner explains...