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Broke Town, U.s.a.

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http://www.nytimes.com/2011/03/06/magazine/06Muni-t.html?_r=1&ref=business

Vallejo, a city about 25 miles north of San Francisco, offers a sneak preview of what could be the latest version of economic disaster. When the foreclosure wave hit, local tax revenue evaporated. The city managers couldn’t make their budget and eliminated financing for the local museum, the symphony and the senior center. The city begged the public-employee unions for pay cuts — all to no avail. In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention; most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city’s firehouses were closed. Last summer, a fire ravaged a house in one of the city’s better neighborhoods; one of the firetrucks came from another town, 15 miles away. Is this America’s future?

Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.

These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself. The problems of cities are everywhere. The city council of Harrisburg, the capital of Pennsylvania, has enlisted a big New York law firm to explore bankruptcy as a means of restructuring a crushing debt. Central Falls, R.I., is in receivership. Hamtramck, Mich., a small city within Detroit’s borders, says it could run out of money next month. Hamtramck has only 90 employees, yet it is saddled with the pensions and health care obligations of 252 retirees. Detroit itself is at risk. Large deficits will mean closing about half of the city’s schools and will push high-school class sizes to 60 students.

These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.

If muni bonds were to default (causing investors permanent harm, as distinct from the temporary discomfort of price fluctuations), ordinary Americans would lose big. Munis are bonds issued by state and local governments, as well as agencies like hospitals, with the interest going to bondholders tax-free. Their relative safety, plus the tax break, has made them a favorite among individual investors, who own about two-thirds of the total, either directly or via mutual funds.

The form fillers will like that, can't get the police then please fill in a online form and it'll just get logged....

However this could be all our future as pension liabilities swamp local council tax payers. The entire ponzi scheme is nearing total collapse. Uncle Ben is going to be very busy trying to prevent this from blowing up.

Still if only these municipals where banks they'd get a bailout and a bonus, because they are real wealth generators.

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However this could be all our future as pension liabilities swamp local council tax payers. The entire ponzi scheme is nearing total collapse. Uncle Ben is going to be very busy trying to prevent this from blowing up.

very busy indeed as he has all this to deal with as well B)

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It seems to me like over the next decade virtually all local governments will go bankrupt. As they all have these huge numbers of people on extremely generous final salary pensions.

As long as there were a lot of boomers working and notthat many retiress it was barely sustainable. But as the big waves of boomers retire, the funds will quickly run out of money, and there is no way the governments have the cash to make up the difference. And walk into any government office and it is mainly older people nearing retirement.

The only way I can think of to maybe keep the pensions is start running inflation at like 6% a year, and lying and saying it is 2% a year. Which is just a fom of partially defaulting on the pensions.

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It seems to me like over the next decade virtually all local governments will go bankrupt. As they all have these huge numbers of people on extremely generous final salary pensions.

As long as there were a lot of boomers working and notthat many retiress it was barely sustainable. But as the big waves of boomers retire, the funds will quickly run out of money, and there is no way the governments have the cash to make up the difference. And walk into any government office and it is mainly older people nearing retirement.

The only way I can think of to maybe keep the pensions is start running inflation at like 6% a year, and lying and saying it is 2% a year. Which is just a fom of partially defaulting on the pensions.

I think that's the best plan, as canny investors can buy precious metals prior to inflation taking off (as it always does - it's impossible to contain) and make a killing as capital flight from devaluing fiat rushes into PM's takes place.

Yes, a splendid plan indeed. :D

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I think that's the best plan, as canny investors can buy precious metals prior to inflation taking off (as it always does - it's impossible to contain) and make a killing as capital flight from devaluing fiat rushes into PM's takes place.

Yes, a splendid plan indeed. :D

In an environment of 6% inflation as long as you own either real estate, equity in companies or commodities you are fine. Its the people in cash and bonds who get hit.

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The only way I can think of to maybe keep the pensions is start running inflation at like 6% a year, and lying and saying it is 2% a year. Which is just a form of partially defaulting on the pensions.

I thought this has been what govts have been doing for the past decade or more, it doesn't appear to have fixed the problem. If it wasn't for us importing Chinese goods the UK inflation rate would have been much higher.

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It seems to me like over the next decade virtually all local governments will go bankrupt. As they all have these huge numbers of people on extremely generous final salary pensions.

As long as there were a lot of boomers working and notthat many retiress it was barely sustainable. But as the big waves of boomers retire, the funds will quickly run out of money, and there is no way the governments have the cash to make up the difference. And walk into any government office and it is mainly older people nearing retirement.

The only way I can think of to maybe keep the pensions is start running inflation at like 6% a year, and lying and saying it is 2% a year. Which is just a fom of partially defaulting on the pensions.

No doubt why that town clerk in Somerset recently paid himself our £510k from local funds before moving on to a "consultancy" job with another council. Cupboard is already bare but enough to come up wioth a few hundred thou for the fat cats councillors.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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