Right Thinking From The Left Coast
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Monday, October 04, 2010

Is Harrisburg the Straw?
by

Oh man---here we go....

Oct. 1 (Bloomberg)—Harrisburg Mayor Linda Thompson asked Pennsylvania to determine the city to be in municipal financial distress so it would qualify for help and oversight under the state’s Act 47 program.

The city “stands on the precipice of full-blown financial crisis as a looming cash shortfall threatens its ability to pay vendors and meet payroll,” a statement from the mayor’s office said.

h/t Zerohedge

Yes, that’s the state capital of Pennsylvania asking for a bailout from the state, because it is broke.

Last year, I predicted shit like this was going to end up happening this year.  The stimulus, contrary to the propoganda coming out of the White House, did nothing more than paper over a bunch of underwater state and municipal budgets that had lost a shitload of revenue due to the housing bubble popping and a plunge in both income and sales tax revenues.  By playing “extend and pretend,” and refusing to acknowledge the actual rot in the economic system--which is crushing debt and entitlement/pension liabilities that need to be either scaled back or cleared away--we’re now looking at a potential snowball effect where cities start asking for bailouts from the states, followed by the states to the feds.

And the Obama administration actually added further to the problem by forcing government recipients of all this interest-bearing, taxpayer-burdening debt to keep their budgets at Housing Bubble-era levels.  The result?  46-48 out of the 50 states are facing budget shortfalls, some of them so severe that default may be a real probability.  Illinois is about 6 months behind on its payments to vendors.  California is $19 billion in the hole, and what are they going to do to try and dig out of it? Borrow $10 billion and keep their fingers crossed that the rest will magically fall out of the sky.

This may be just the tip of the iceberg, as municipal bonds, long considered one of the safest havens for investors, are now being effectively shorted on the market, according to Meredith Whitney, via this link at National Review.  That indicates confidence in the prospect of the Feds turning into “Bailout Central” is pretty low.

This has the potential to get really, really ugly, as the government cheese is effectively gone and capital formation has been effectively nuetered by Bernanke’s ZIRP policies.  The efforts to keep the housing market bubblicious have failed.  And now that the stimulus has been shown by time and simple math to have not stimulated jack shit, given what was sunk into the program, Obama’s got no more bullets left in the gun to fire.  Another round of “stimulus” and he can kiss his re-election chances goodbye, while going after the banks and mortgage lenders that committed fraud during the housing bubble could potentially trigger a stock market free-fall that made last spring’s flash crash look like a small blip, effectively strangling the “recovery” meme that’s been nursed along by the media the last 6 months or so.

No wonder the man’s so cranky these days. 

Karl Denninger summed it up best a few days ago:

You can’t fix this through any other path than truth.  The hard, nasty, ugly truth.  The blue line must go under the red line, basically.  That is, the government’s debt must grow more slowly than private GDP does, or you inherently create bubbles which burst, and the people who do so then demand more and more government bailouts and handouts, which simply forces the blue line higher!

(snip)

Folks, exponential growth cannot be continued forever.  The landmass of this rock - and our nation - is finite.  We have run the false belief that we can have 5% growth annually forever.  We can’t.

Posted by on 10/04/10 at 07:55 PM in Cullyforneah   Politics   Law, & Economics  • (0) TrackbacksPermalink
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