Posted on 11/28/2010 11:29:28 PM PST by goldstategop
We won't be able to say we weren't warned. Continued huge federal budget deficits will eventually mean huge increases in government borrowing costs, Erskine Bowles, co-chairman of Barack Obama's deficit reduction commission, predicted this month. "The markets will come. They will be swift, and they will be severe, and this country will never be the same."
Bowles is talking about what the business press calls bond market vigilantes. People with capital are currently willing to loan money to the federal government, by buying U.S. bonds at low interest rates. That's because interest rates are generally low and because Treasury bonds are regarded as the safest investment in the world.
But what if they aren't? What if investors suddenly perceive a higher risk and demand a higher return? That's what Bowles is talking about, and there are signs it may be starting to happen. The Federal Reserve's second round of quantitative easing -- QE2 -- was intended to lower the interest rate on long-term bonds. Instead, the rate has been going up.
The federal government still seems a long way from the disaster Bowles envisions. But some state governments aren't.
California Gov. Arnold Schwarzenegger came to Washington earlier this year to get $7 billion for his state government, which resorted to paying off vendors with scrip and delaying state income tax refunds. Illinois seems to be in even worse shape. A recent credit rating showed it weaker than Iceland and only slightly stronger than Iraq.
It's no mystery why these state governments -- and those of New York and New Jersey, as well -- are in such bad fiscal shape. These are the parts of America where the public employee unions have been calling the shots, insisting on expanded payrolls, ever higher pay, hugely generous fringe benefits and utterly unsustainable pension promises.
The prospect is that the bond market will quit financing California and Illinois long before the federal government. It may already be happening. Earlier this month, California could sell only $6 billion of $10 billion revenue anticipation notes it put on the market.
Individual investors have been selling off state and local municipal bonds this month. Meredith Whitney, the financial expert who first spotted Citigroup's overexposure to mortgage-backed securities, is now predicting a sell-off in the municipal bond market.
So it's entirely possible that some state government -- California and Illinois, facing $25 billion and $15 billion deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout. The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor union allies.
But the Republican House is not likely to share that view, and it's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate.
How to avoid this scenario? University of Pennsylvania law professor David Skeel, writing in The Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt.
Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy. Some have done so: Orange County, Calif., in 1994, Vallejo, Calif., in 2008. Others -- perhaps a dozen small municipalities in Michigan -- are headed that way.
A state bankruptcy law would not let creditors thrust a state into bankruptcy -- that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a "cram down," imposing a haircut on bondholders, and to rewrite its union contracts.
The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court.
It's not clear that governors like California's Jerry Brown, who first authorized public employee unions in the 1970s, or Illinois's Pat Quinn will be eager to use such a threat against unions, which have been the Democratic Party's longtime allies and financiers.
But the bond market could force their hand and seems already to be pushing in that direction. And, as Bowles notes, when the markets come, they will be swift and severe.
The policy arguments for a bailout of California or Illinois public employee union members are incredibly weak. If Congress allows state bankruptcies, it might prevent a crisis that is plainly looming.
All you say is true but there is one immutable fact and that is taxes CANNOT be raised continually because there is a point where the taxpayer simply cannot pay them, even if they want to. By taking consumer dollars out of the economy in order to pay taxes the economy which generated those taxes will contract and the downward spiral continues.
Politicians inherently are cowards because all they care about is re election, not doing what is actually right. Term limits will solve this and stop these asses fro beginning their re election campaigns the day after they are sworn in.
Marxist trade and pubic sector worker unions are a much bigger threat to national security than terrorists.
Effective immediately upon taking control of the WH, the GOP must move to destroy the unions that work to put marxists into positions of power in the Federal govt.
Zero tolerance for marxists in US Government.
By Executive Order, declare all states “Right to Work” states.
No more compulsory union dues in order to keep your job.
Give all union workers a raise, give them the option of keeping the money they were forced to pay in dues to the socialist crook union bosses.
Time to put the screws to these red sons of bitches, paybacks a bitch.
Morris has done at least what I think is some good writing on this - I am not too sharp on financial matters...
Mark Levin mentioned one of these columns on his program and said he was going to check these remedies out...
http://www.dickmorris.com/blog/the-coming-catastrophe-state-governments
“The Republican solution to state financial distress should be simple: The Party should insist on a change in the federal bankruptcy law providing for a procedure for state bankruptcy (none now exists). This process must call for abrogation of all state and local public employee union contracts as is usually done in private sector bankruptcies.
By freeing states and local governments (including school boards) of their union obligations on wages, work rules, staffing, and pensions, they have a chance to survive and, indeed, to prosper. But merely subsidizing these massive expenditures just prolongs the misery of the states in question.”
******
http://www.dickmorris.com/blog/why-we-need-to-let-states-go-broke/
08.10.10
Here’s the key: The reforms must require that states abrogate their public-employee union agreements in the bankruptcy process, just as private corporations like Delta and Chrysler have done. The wage hikes, the work rules, the pension plans all go out the window.
Few states will have the starch to cut benefits for those now receiving them. But most will cut pensions for current workers and all will slice them for future employees. Even the threat will be a powerful bargaining tool.
*****
http://www.dickmorris.com/blog/smash-the-union-thug-ocracy/
11.08.10
The House must create a federal bankruptcy procedure for states that cannot make ends meet requiring, as happens in corporate bankruptcies, that the state governments abrogate all their union contracts. The new state bankruptcy procedure should offer all states – and through them, their localities, counties, and school boards — the ability to reorganize their finances free of the demands and constraints of their union agreements.
This measure will return our state and local governments to the sovereignty of the people and take them away from the thug-ocracy of public employee unions.
When states like California and New York come to Washington begging for relief, they will threaten us with the closure of their schools and the release of their prison inmates if we deny them subsidy. Liberals and President Obama will try to portray the battle as school children vs. niggardly Republican legislators.
But the real fight will be between school children and citizens on the one hand and unions on the other. The House must shape the issue so that it exposes the real cause of the state shortfalls: The excessive agreements public employee unions have won over the years.
Govt. Pensions must STOP!! It’s INSANITY to think they can be sustained!! insanity!! STOP THE UNIONS....NOW!!
This is why I think the European Central Bank (ECB) and other EU authorities are probably already working up a plan to put the worst problem banks in Portugal, Spain, Ireland, Italy, Greece and Spain into a pre-planned bankruptcy condition (known as receivership in Europe) so they could do an orderly shutdown of these banks and combine whatever assets are left into stronger, more viable entities.
Public sector unions in these states knew that the fiscal day of reckoning was going to come sooner or later and they demanded that their political allies (ie democrats) protect the booty at all costs. FU joe public. Just shut up and pay my lavish pension. I don't care how you get the $ just pay me.
There should be a pre-emptive strike methinks. States should need to have their finances certified in order to maintain their status - private sector generated bond ratings or something like that. If a state fail to meet a rating, as any insurance company would, their funds are escrowed rather than delivered until the situation is remedied. It’s not about limiting state sovereignty, its about preserving the rest of the state’s sovereignty.
The risk to the other states of California becoming Greece is too great. It is sheer lunacy to assume that North Dakotans should and would support California’s failure to face reality. That is a new civil war in the making.
Oh, that would work just swell. A federal law allowing states to force a "cram down" on bondholders wouild have investors rushing to the exit in any bond auction being held by a state nearing insolvency, driving interest rates up dramatically for such a state and possibly making it impossible to sell bonds at any price.
And investors won't ever again be fooled by creation of "senior" securities, supposedly standing at the head of the line for repayment, after seeing what happened to holders of such securities in the auto bailouts last year: Obama picked their pockets and handed the money to the union thugs who own the democrat party,
” state laws that forbid revocation of union contracts...”
That’s a BS law which has no force of law.
A legislature can nullify any law passed by a previous legislature. There is no such thing as a plenary legislature whose laws are omnipotent and untouchable. A legislature can cancel any union contracts, and there’s not a damn thing judges can do about it. It’s why we have elections - so the new legislature can correct, modify or rescind legislation from a previous legislature.
If a judge tries to enforce any law that forbids a revocation of a union contract, the legislators can impeach and remove that judge.
Legislatures clearly have the power to change laws - any law.
I live in that city (Vallejo). It’s been mismanaged for decades and had the highest paid police and fire services of anywhere in the state and most of the nation! The unions fought the bankruptcy tooth and nail!
Illinois: Between Iraq and a Hard Place ... to live
A novel, forced idea, only spend within your means.
Hmmm. One could begin a political movement based on that concept.
yitbos
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.