Senate Greece and Illinois - the Public/Private debt crisis spiral

Discussion in 'Archive: The Senate Floor' started by Jabbadabbado, Mar 11, 2010.

  1. SuperWatto Manager Emeritus

    Member Since:
    Sep 19, 2000
    star 5
    Fixed. Who has one already? Who's saving the economy?

    This is getting scary. Normally Jabba posts doom scenarios, estimated to take place around the time of my pension... but now you can read his posts in the newspaper the next day.
  2. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Today it's California and Ireland and Portugal.

    For California, Another Day, Another Deficit

    Five weeks after the Legislature passed a budget that promised to close a $19 billion budget shortfall, California has sunk back into yet another fiscal crisis, this time facing a $26 billion gap that is posing a major new challenge for the incoming governor, Jerry Brown

    British banks have £140 billion exposure to Ireland's economic crisis

    The Chancellor attended crisis talks in Brussels to discuss the growing debt crisis in Ireland with the country under intense international pressure to accept an international bailout.

    Portugal short-term debt costs soar, jobless rises

    Portugal's cost of borrowing soared at a treasury bill auction on Wednesday and unemployment hit its highest in at least two decades, highlighting the challenges facing the debt-ridden euro zone economy.

    Crazy times.
  3. New_York_Jedi Force Ghost

    Member Since:
    Mar 16, 2002
    star 6
    Its going to be very tricky for the eurozone to deal with Ireland in a way that doesn't cause Portugal and then Spain to go to hell. They can handle Ireland, and probably Portugal on their own. They will be unable to handle a Spanish debt crisis without significant help.
  4. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    The NY Times finally picks up the thread of where state debt crises are heading:

    Mounting Debts by States Stoke Fears of Crisis


    But the finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

    Analysts fear that at some point ? no one knows when ? investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones, much as the turmoil in Europe has spread from country to country.


    Can the U.S. afford another round of state bailouts at this point, or at any time going forward? What will it mean for the country if California and Illinois and Florida and Nevada, just by way of example, all go bankrupt?

    [Illinois] borrowed $10 billion in 2003 and used the money to invest in its pension funds. The recession sent their investment returns below their target, but the state must repay the bonds, with interest. The solution? Illinois sold an additional $3.5 billion worth of pension bonds this year and is planning to borrow $3.7 billion more for its pension funds.

    Here is a Ponzi scheme to put Bernie Madoff to shame.

    And of course, as states suffer, so will their major cities that depend heavily on state funding. Chicago could conceivably face bankruptcy.

    States borrowing to pay basic operating costs is the equivalent of families forced by unemployment to pay their grocery and utility bills with credit cards. It can only go on so long, and can spark a crisis even when revenue starts coming in again when debt maintenance overwhelms the budget.

    $6.3 trillion in state debt overhang. $2.8 trillion in bonds and an estimated $3.5 trillion in pension shortfalls. It's another housing bubble waiting to burst.
  5. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Alabama Town?s Failed Pension Is a Warning

    This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

    Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers.


    Welcome to the 2010s - American style austerity. The new Congress and Obama will be forced to deal with this issue, either through more Federal bailouts or by a deliberate policy of allowing state and local governments to go bankrupt.
  6. DarthIktomi Jedi Master

    Member Since:
    May 11, 2009
    star 4
    I thought the answer was to pay the bank executives who caused the mess trillions of dollars? That is what "austerity" means, is it not? Firefighters and teachers get less, bank executives get more?
  7. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Cuomo Lays Out Plan to Curb State Spending

    We'll be seeing a lot more of this kind of thing in 2011 - more and more governors forced to seek drastic austerity programs for their respective states. At the state level, multi billion dollar budget deficits tend to strip away the distinctions between Republicans and Democrats. Unlike the Federal government, one of the things states can't do to pay their bills is print more money. They can often simply not pay their bills, which is what Illinois is doing right now.
  8. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Illinois has taken an unsurprising and inevitable approach to its budget problems: it will raise taxes and try to slow spending growth.

    My state income tax will rise to 5% of my income from 3%. The corporate tax rate will rise to 7%. This will hurt private sector employment in Illinois of course. As with any regressive tax its effects will fall disproportionally on the poor. Hopefully, Illinois will be able to keep its public pension system afloat and avoid massive public sector layoffs.

    As painful as it is to me personally, raising taxes is the right thing to do.

    Meanwhile in Europe, Portugal completed a successful auction of 10 year bonds and the EU discussed increasing the $500 billion European Financial Stability Fund, both events easing somewhat anxiety about Portugal being on the brink of needing its own EU bailout.
  9. Mr44 VIP

    Member Since:
    May 21, 2002
    star 6
    I don't think I would mind either, had the additional revenue been used to do nothing but reduce the debt. However, the problems I have is that 1)large portions of this seem to be earmarked already for non-debt related expenses, and 2)the state legislature is trying to keep the illusion that this will some how be "temporary." I can't think of any area where government was allowed to expand, and then willingly contracted again.

    If other reforms don't happen as well, then after 4 years (or is it 5?) when the state is used to taking in the additional "temporary" 7 billion dollars, there's going to be another massive funding crash.

    And I do think it's a low blow to pass this literally minutes before the lame duck session ended, but before the new state electors take over, and then assign it a time period that will put it just past the next election. So even if Quinn doesn't get re-elected next time, he's golden, because it will be "the next person's problem," which I suppose is a signature of the shrewdness of IL politics.
  10. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    It's a crappy situation all the way round. The things Illinois needs most: public pension reform and wholesale renegotiation of public union contracts are exceedingly hard to accomplish as we've discussed before.

    But the Illinois economy also can't absorb massive public sector layoffs right now either. Sneaking through a last second tax hike was the most Illinois-esque way to handle the situation, that's for certain.
  11. shanerjedi Jedi Master

    Member Since:
    Mar 17, 2010
    star 4
    Media is calling it a 66% tax increase. Is that accurate?
  12. Kimball_Kinnison Force Ghost

    Member Since:
    Oct 28, 2001
    star 6
    From what I've read, it's from 3-5%. The 2% increase means that a person will be paying approximately 67% more in taxes.

    Kimball Kinnison
  13. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Der Spiegel is reporting that domestic political unrest in Greece resulting from the oppressive austerity measures imposed on is forcing the Greek govt. to weigh the option of abandoning the Euro and perhaps opting out of the EU entirely. EU leaders are apparently meeting in Luxemburg to try to prevent this from happening.

    Crisis Meeting Concerning Greece Rattles Eurozone
  14. GrandAdmiralPelleaon Force Ghost

    Member Since:
    Oct 28, 2000
    star 6
    On the other hand, most media I've seen since then are saying Greece is denying having raised the issue.

    BBC Article


  15. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Eurozone fights to contain crisis amid new bid to rescue Greece
    Euro policymakers at first denied that a meeting was taking place, but were later forced to admit that the German, French and Italian finance ministers had been holed up in a chateau in Luxembourg with their Greek counterpart George Papaconstantinou, discussing options for dealing with Greece's unsustainable debt burden.


    The global bond market is going to end up starring in the soon-to-be-released sequel to the great recession of 2008. All it will take to shove bond markets over the edge is a few more half-baked rescue efforts at the EU and a little more push from the idiot parade in the U.S. House of Representatives.
  16. GrandAdmiralPelleaon Force Ghost

    Member Since:
    Oct 28, 2000
    star 6
    Tbh, I almost wish it would happen. The only way people will recognize this for the circus it is, is when they get slapped in the face with it. Apparently. It's as if people forgot where those debt burdens came from - no, they didn't come from explosive pension payments.

    EDIT:

    Best part of your article:


    You don't, do you. Which is exactly why we shouldn't be listening to people like you, as you apparently are just throwing darts at a board, hoping it'll land on the right analysis. A lower euro would benefit Germany, btw, just saying. Wonder where those rumors might be coming from? Hmmm ...
  17. Vaderize03 Manager Emeritus

    Member Since:
    Oct 25, 1999
    star 5
    Jabba, have you read any articles by Porter Stansberry?

    I recently joined his site, and the two of you sound exactly alike. Interestingly enough, he predicted the financial collapse and the bailouts, and his latest predictions are very alarming, to say the least. Hyperinflation does NOT sound like a fun thing to experience.

    Peace,

    V-03
  18. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    No, I haven't but I will now.
  19. Mr44 VIP

    Member Since:
    May 21, 2002
    star 6
    So, there's an interesting appellate court decision which was just decided which could fit in the gun control thread, but since its more debt-related, I think its more appropriate here.

    Anyway, in the McDonald v Chicago decision, (merged with NRA v Chicago and Oak Park) the Supreme Court ruled that the Second Amendment guarantees a fundamental right to keep and bear arms. (along with the sister decision Heller v DC) That SC decision is what repealed Chicago's and Oak Park's "gun bans" within their respective city limits.

    The interesting appellate decision which came from the 7th Circuit Court is that both Chicago and the village of Oak Park have to pay for the NRA's attorney's fees, all the way up to arguing the case before the Supreme Court. The total is expected to be in the millions of dollars, with the split between the two cities. Chicago is expected to get the largest slice of the pie, and can probably absorb the cost, but even if Oak Park gets assessed $300,000? $500,000? It's going to be a large hit to the village's budget.

    I remember when the Oak Park village staff was debating whether or not to repeal their gun ban when the initial suit was filed to challenge the restrictions. (Another village in IL which had a similar ordnance repealed theirs) Oak Park choose to join with Chicago, which wasn't necessarily a good or bad choice to make, even though I'd say the writing was already on the wall, but it's going to cost them now.

    Of course, this ruling can always be sent up to the Supreme Court as well, and then the SC would rule on a decision based on a decision they made. Crazy stuff.
  20. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    A sinkhole in front of the high school reportedly cost the village $200k to fix. You can already see the Village's budget woes in the form of major unrepaired street problems. I'm not sure what the city's standards are for liability insurance either, whether it is actually paying all or any of these legal fees out of pocket. I never know whether it is actually the Village defending these lawsuits or the village's insurers.

    In any case, if the village does have to pay this directly, it will definitely be a hit.

    Also, I can tell you that since the gun ban was repealed, the internet-reported value of my house has dropped another $100,000 and even Cook county has dropped its assessed value substantially. We all know those two are related, right? Right?
  21. Mr44 VIP

    Member Since:
    May 21, 2002
    star 6
    While not exactly related to Illinois' budget per se, the jury just reached a verdict in the 2nd go around of the Blagojevich trial. He was found guilty on 17 charges relating mostly to wire fraud and attempted "selling" a Senate seat. And then either not guilty/deadlocked on 3 charges. Not bad results.

    I guess all those reality show appearances and nutty pistachio commercials didn't help after all.... Of course, appeals are expected, but substantial prison time is now being sought.
  22. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Occupy Chicago: At least 100 arrests in Grant Park


    Protesting austerity measures, more than 20,000 Greeks held a one-day strike and demonstration in Athens on Wednesday


    If Greece were to follow the example set by Argentina nearly a decade ago, it would simply convert its debts from euros into its old currency, the drachma, at the old exchange rate of 340.75 drachmas to one euro. It could also convert euro currency in the country at the same rate. So if you owned one million euros in Greek bonds, they would be converted to bonds with a face value of 340.75 million drachmas.

    Oy
  23. SuperWatto Manager Emeritus

    Member Since:
    Sep 19, 2000
    star 5
    Cool scary graph by the NY Times.

    [image=http://graphics8.nytimes.com/images/2011/10/22/opinion/20111023_DATAPOINTS/20111023_DATAPOINTS-popup.jpg]
  24. Jabbadabbado Manager Emeritus

    Member Since:
    Mar 19, 1999
    star 7
    Chasing austerity is a path to ruin in the short run. As austerity slows economic growth, state revenue is impacted, which in turn forces Greece to abandon its projected deficit reduction goals. A worst-case scenario still remains possible. Every solvent European government is trapped between public opinion and their banks. Go too far in forcing writedowns on the banks and you have to bail the banks out as well as face another round of massive interest rate increases. Don't go far enough in rescuing Greece and it defaults and leaves the currency union.

    Interest rates on Italian debt have jumped from under 4% a year ago to above 6% now. If Italy defaults the EU is finished.

    But even under a better scenario I don't see how western Europe escapes a recession or how the U.S. escapes recession either if the EU contracts first.
  25. SuperWatto Manager Emeritus

    Member Since:
    Sep 19, 2000
    star 5
    Yeah. I don't see how we're going to get out of this, either. Seems the EU finance ministers are actually going to give Greece another injection, tomorrow. I wonder why. Nobody seems to believe in it anymore. Maybe it's all just so they can say "we did what we could" afterward.

    Yeah... with OPP.