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With so many major cities and states now on the brink of bankruptcy, I have two very urgent questions for you this morning:
What cuts in government services are you aware of in YOUR area? And how do you and your family plan to cope with them?
Just click here to give me your comments.
And over the next few days, my team and I will do everything in our power to give you feedback and guidance. Unfortunately …
This Crisis Is Turning Into a Greek
Tragedy in More Ways Than One!
In recent years, the Greek government was so deep in debt, it had no choice but to borrow heavily from bond investors just to pay its daily bills.
Then, in late 2009, the Greek debt crisis reached critical mass. Fitch downgraded Greece’s credit rating. Despite radical reforms and spending cuts, the crisis deepened.
By April 2010, global bond investors were stampeding for the exits. Short-term interest rates exploded to 18 percent, making it virtually impossible for Athens to continue financing its operations.
Greece was on its deathbed.
The World Bank and the European Union agreed to an 11th hour cash transfusion — but only on one condition: The Greek government would have to perform radical budget surgery, slashing expenses like never before.
By May, the entire nation was in chaos. Thousands of government workers were rioting in the streets. Blood was shed.
And today, Greece’s economy is still bleeding; its very survival still in question.
Meanwhile, 5,133 miles to the East — in Washington, DC — the most pressing question on our leaders’ minds now is:
Which State Will Be
America’s First “Greece”?
There is a disease in America — the same sort of disease that mortally wounded Greece and Ireland … hobbled Portugal and Spain … and has started to spread to other nations.
In America, though, it’s a double-edged debt crisis which is now poised to crush the economy — on both a FEDERAL level and a LOCAL level.
Indeed, at EVERY level of government, debt and deficits are now exploding, or on the verge of exploding.
The debt crisis at the federal government level is the one everybody talks about. The massive $14 TRILLION debt bomb that Washington has built — and the $1.4 trillion in NEW debt that Washington is still piling up each year.
The second debt bomb is not quite as large, but it’s far more dangerous because it’s on a hair trigger: the debt-and-deficit disaster at our nation’s states and cities.
As you read this, our state and local governments owe as much as $2 trillion more than they can pay. They owe STILL more to pension funds — a whopping $3.5 trillion. Plus, they also owe health benefits of more than $500 billion.
For the past couple of years, the states have been scraping by on billions of dollars in federal stimulus funds. But now, that money has been spent and is nearly gone. Bottom line:
The Day of Reckoning Is Now at Hand!
There’s no overstating how serious or how pressing this crisis is.
Unlike the federal government, the cities and states cannot print money to pay their bills.
Unlike Washington, they are bound BY LAW to balance their budgets each and every year.
But too many cities and states simply cannot balance their budgets. Decades of gross mismanagement … insane concessions to government workers’ unions … and unrealistic promises to voters have left them with only once choice …
To cut their budgets to the bone and then pray for the best.
Consider how desperate U.S. cities and states already are:
Many states and cities are cutting their police forces. Newark, for example, just laid off 13 percent of its police officers in November.
Others are releasing prisoners early because there isn’t enough money to house them.
Philadelphia, Baltimore, Sacramento, and many other cities are laying off firefighters and emergency medical personnel, shutting down firehouses.
Many states — including New York and New Jersey — have attempted to stop the bleeding by refusing to pay their pension funds, which are now collectively underfunded to the tune of $1 trillion.
Governor Chris Christie slashed New Jersey’s budget by 26 percent, laying off thousands of teachers … firing 1,300 state workers … and drastically reducing funding to New Jersey cities and counties. Yet he’s still facing another $10 billion deficit next year.
In Illinois, state Comptroller Dan Hynes says there are tens of thousands of people — if not hundreds of thousands — in queue waiting for their checks, which are now up to six months overdue! Social service groups have laid off hundreds of workers while waiting for checks. Pharmacies are closing for lack of Medicaid payments.
Also in Illinois, state officials are being evicted from their offices for nonpayment of rent.
California now faces a deficit of $28.5 billion over the next 18 months and annual deficits of AT LEAST $20 billion for the next five years.
Before leaving office, Governor Schwarzenegger proposed $7.4 billion in new spending cuts in welfare, health care, and child care. But after three years of budget cutting, there is little left to cut.
Analysts generally agree that the only solution would be for in-coming Governor Jerry Brown to scrap virtually everything related to Proposition 13, which caps real estate taxes and which he himself championed the last time he was governor, 36 years ago. But that’s legally and politically impossible.
Meanwhile, California’s credit rating is approaching junk status, the lowest of any state in the Union.
Arizona is so desperate that it sold off its state capitol, Supreme Court building, and legislative chambers. And now it leases the buildings from the new owner.
The state also eliminated Medicaid funding for most organ transplants.
The demand for food stamps has been rising significantly in Idaho, but tight budgets led the state to close nearly a third of the field offices of the state’s Department of Health and Welfare, which take applications for them.
Wondering why the jobs report was so disappointing this Friday? Now you have the answer! It was almost entirely due to this crisis, according to the data released by the U.S. Labor Department last week.
But the Biggest and Most
Immediate Threat Is DEFAULTS!
Time has run out.
The first major state or municipal defaults are now just a few months or even weeks away.
Even The New York Times recently reported that Illinois, California, and several other states are at increasing risk of being the first states to default since the 1930s.
That’s not just my view: According to Meredith Whitney, who accurately predicted the global credit crunch, 50 to 100 MAJOR American cities are likely to go bankrupt THIS YEAR!
If Ms. Whitney is right — and I believe she is — those 100 American cities will default on hundreds of billions of dollars of loans and bonds. Up to one million public employees could lose their jobs.
How Bad Could It Get? Consider
This Possible Sequence of Events …
A state or major city announces that it is unable to pay the yield on its bonds.
Panic grips the entire bond market.
Investors dump nearly ALL tax-exempt instruments.
Scores of other cities and states find it impossible to refinance their debt or sell new bonds without offering sky-high, double-digit yields.
Many MORE defaults follow.
The U.S. dollar folds like a cheap suit.
Interest rates launch into double digits.
Soaring interest rates hit America’s businesses like a ton of bricks.
Earnings crater — and along with them, stock prices.
Dozens of government entities declare states of emergency and demand billions of dollars in immediate bailouts from Washington.
What Happens Next?
Will our new, fiscally conservative Congress surrender to political pressure and save the states and cities? Or will it surrender their principles to these realities and step into the gap?
Consider the latest news …
- Late last week, Fed Chairman Bernanke formally declared that the Federal Reserve cannot and WILL not bail out the local governments.
- At the same time, the new Republican leadership in Congress has also drawn a line in the sand, foreswearing any bailouts of cities and states.
Moreover, this is not just political posturing. Far from it! These pronouncements reflect the inescapable fact that Washington has truly exhausted the political will to embark on a whole new round of bailouts.
What If Washington DOES Decide to
Pile Up Billions More in Federal Debt
To Save the States and Cities?
Then, the question will be an even MORE ominous one: WHO IS GOING TO SAVE WASHINGTON when the next shoe in this great debt crisis — the implosion of federal debt — drops?
Could it happen?
“NO!” say Standard & Poor’s and Moody’s — the two bond rating agencies that got everything wrong in the housing collapse.
My answer is quite different: The federal day of reckoning is ALSO imminent!
That time could come a lot sooner than you might think …
No more papering over the debt monster with phony-baloney accounting tricks!
No more borrowing from Peter to pay Paul!
No more time for the United States of America to stay on the dole from overseas creditors like China and Japan!
Look. Regardless of what happens on a federal level, it’s only a matter of a short time before news of the first city and state defaults explodes into the headlines — and then, it could be too late for you to protect your wealth.
There’s no way I’m going to sugarcoat this: To get through 2011 with your wealth intact, you will need to (1) FULLY understand the danger and then (2) ACT to insulate yourself.
For the next several days, I’m going to use my personal blog to do everything in my power to help prepare you for this rapidly unfolding crisis. And in a few days, my team and I will give you our solutions for protecting your wealth and even profiting as this dire situation unfolds.
Each day, I’ll pose a critical question and meet with you on my blog to discuss your answers.
So let me repeat today’s questions of the day that I posed at the outset:
What cuts in government services
are you hearing about in YOUR area?
and …
How do you and your family
plan to cope with them?
Just click here, give me your feedback and make your voice heard!
Good luck and God bless!
Martin
Say you’re a central banker in China for a moment. You have $3 trillion in reserves. And since last June alone, the dollars you hold have plunged nearly 18% in value.
What cuts in government services are you hearing about in YOUR area?
