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.
for 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!
It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.
The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”
Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...
The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.
By the time you do… Kaboom! It’s too late. They’ve already blown up your retirement. There are three time bombs the mutual fund industry has planted within your 401(k). By the time you’re done with this article, you’ll know how to identify them. And, more importantly, how to disarm them. Dave Gonigam has the scoop...
The latest victim of the crude rout is none other than the stalwart tech stocks. These are the go-to trades that have held up all year long. I'm talking about stocks like Google, Yahoo! and Microsoft. Like I said before, these aren't no-name stocks you're seeing drop more than 10% from their highs last month.