Tag Archives: Bankruptcy

Realizing the Full Implications of the Forthcoming Catastrophe, MN Gordon

It’s been easy to descend the staircase into national bankruptcy. From MN Gordon at economicprism.com:

Delivering Tomorrow’s Curses

Roman poet Virgil penned these words in his epic, The Aeneid, roughly a generation before the birth of Jesus of Nazareth.  They can be loosely translated to, “the descent to hell is easy.”  Those who’ve traversed this passage can attest to the veracity of this axiom.

Though not apparent in the milieu of Virgil’s poem, for our purposes today, we’ll extend its application to the insidious progression of currency debasement.  What short utterance more aptly characterizes the steady degradation, as currently practiced by today’s church of state?

Yesterday [Thursday], for example, the House acted with untroubled ease to further America’s descent to hell.  With little resistance, federal spending was increased and the debt ceiling was suspended for two years.  Having delivered tomorrow’s curses, the nation’s Representatives can skip town without missing a moment of summer recess.

As you can see, the allure of getting something for nothing is far too enticing for even the most honest politician to pass up.  And with an endless supply of fake money behind you, why stick your neck out and get clobbered?  The public debt encumbered is already well beyond honest repayment.  But that’s a problem for tomorrow; not today.

Representative government in America, circa now, has nothing to do with upholding individual freedoms and liberties.  Nor is it about making tough decisions in the interest of the long-term health of the nation.  It’s about doing the expedient – and suspending the debt ceiling so the descent to hell can be made as comfortable as possible.

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New York City is edging toward financial disaster, experts warn, by John Aldan Byrne

If you keep spending more than you take in, you’ll go broke. Who knew? From John Aldan Byrne at nypost.com:

New York City is careening closer to all-out financial bankruptcy for the first time since Mayor Abraham Beame ran the city more than 40 years ago, experts say.

As tax-fleeced businesses and individuals flee en masse, and city public spending surges into the stratosphere, financial analysts say Gotham is perilously near total fiscal disaster.

Long-term debt is now more than $81,100 per household, and Mayor de Blasio is ramping up to spend as much as $3 billion more in the new budget than the current $89.2 billion.

“The city is running a deficit and could be in a real difficult spot if we had a recession, or a further flight of individuals because of tax reform,” said Milton Ezrati, chief economist of Vested.

“New York is already in a difficult financial spot, but it would be in an impossible situation if we had any kind of setback.”

De Blasio has detailed $750 million in savings for the preliminary fiscal 2020 budget, but that won’t be enough to stave off a bloodbath if New York’s economy is hit by financial shocks — including a recession, which some see on the horizon — analysts warn. Gov. Cuomo’s preliminary budget has $600 million in city cuts in the coming year.

But city spending, up some 32 percent since de Blasio took office — triple the rate of inflation — may need to be cut deeper, these analysts add. The city’s long-term pension obligations have escalated, as well, as its workforce has soared by more than 33,000 in the last five years.

Other startling indicators:

  • New York state — and city — are ranked No. 1 nationwide in state and local tax burden.
  • Property taxes, almost half of the city’s revenue, is rising faster than any other revenue source — squeezing businesses and forcing homeowners, already hit by federal property tax deduction changes, to relocate to lower-tax states.
  • The top 1 percent of New York City earners pay some 50 percent of Big Apple income tax revenue.

“New York City could go bankrupt, absolutely,” said Peter C. Earle, an economist at the American Institute for Economic Research.

“In that case, the city would get temporary protection from its creditors, but it would be very difficult for the city to take on new debt.”

 

The Big Government Show Must Go On, by MN Gordon

President Trump wasn’t going to ruin his State of the Union address by mentioning America’s inconsequential national debt. From MN Gordon at economic prism.com:

Another week.  Another week of distractions.  On Tuesday, for instance, was the great State of the Union Address.  To this, many opinions and observations have been offered.  Here, we’ll contribute several of our own…

President Trump is a showman of stout ego.  How he must have relished the run-up to Tuesday’s primetime address with impatient anticipation.  What a disappointment it must have been to look out from the podium of the House of Representatives at the 116th Congress and see the greatest assemblage of political crooks, lowlifes, and losers in living memory staring back at him.

But the show must go on…disappointments and all.  For life’s full of disappointments.  The many botched opportunities.  The countless hours wasted on bids for ridiculous jobs.  Super Bowl Sunday.  Duds, dissatisfactions, and disappointments come a dime a dozen.

Words are also the source of many disappointments.  Words that shouldn’t have been said.  Words that should have been said.

So, too, words, and the absence of words, can be distractions.  And within a sequence of words there are sometimes obvious omissions.

For example, nowhere within the 82 minute State of the Union Address was there a single word of the country’s burgeoning $1 trillion budget deficit.  Nowhere was there a word of the great $22 trillion national debt default that’s bearing down upon us like a savage hurricane along the Gulf Coast.  Nowhere was there mention of the $122 trillion in unfunded liabilities, which includes the sacred cows of social security and Medicare.

What Gives?

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The Coming Bankruptcy of the American Empire, by Hunter DeRensis

Any entity that continuously spends more than it takes in will go bankrupt. That includes the American empire. From Hunter DeRensis at mises.org:

The chickens are coming home to roost. It’s only a question of when.

Herbert Stein was chair of the Council of Economic Advisors under Presidents Richard Nixon and Gerald Ford and is the father of the more well known Ben Stein. In 1976, he propounded what he called “Stein’s Law”: if something cannot go on forever, it will stop. Stein was referring to economic trends, but the same law applies just as much to foreign policy and the concept of empire.

Stein’s Law at first glance might seem like a banal platitude. But we should be fully cognizant of its implications: an unsustainable system must have an end. The American empire is internally flawed, a fact that anti-imperialists both left and right should appreciate.

The United States’ national debt is approaching $22 trillion with a current federal budget deficit of over $800 billion. As Senator Rand Paul often points out, bankruptcy is the Sword of Damocles hanging perilously close to Uncle Sam’s neck. Outside of a handful of libertarian gadflies in Congress such as Paul, there is no serious political movement to curb the country’s wayward spending. It would take some upset of multiple times greater magnitude than Donald Trump’s 2016 victory to alter this course.

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A more likely reason Rahm Emanuel dropped out: the Chicago time bomb, by Ted Dabrowski and John Klingner

Sooner or later Chicago will go bankrupt, and it’s certainly a plausible supposition that Rahm Emanuel wanted to get the hell out before it does. From Ted Dabrowski and John Klingner at wirepoints.com:

We may never know why Rahm Emanuel decided to drop out of the Chicago mayoral race. But the media is certainly giving him a pass. They say he simply dropped out for fear of losing. But there’s a far more likely reason than that.

Emanuel is smart, and the smart reason for leaving is glaring: He doesn’t want to risk becoming “mayor bankruptcy.” Chicago is a ticking time bomb and Emanuel is jumping ship just in case it goes off.

Don’t dismiss that scenario too quickly. Despite his lofty intentions when he first took office, Emanuel has failed miserably to reform the city’s finances. Now the risk of insolvency is rising.

Chicago’s financials are dire and the city has no plan and no reserves to survive an inevitable recession. In fact, the city has barely kept its head above the water despite a decade of national economic growth. Chicago Public Schools was already at the brink of bankruptcy just one year ago. Continue reading

Janus v AFSCME and the truth about Illinois pensions in one graphic, by Ted Dabrowski and John Klingner

Here’s the short answer to why Illinois is broke: promised pension benefits have skyrocketed and tax revenues and incomes have not. From Ted Dabrowski and John Klingner at wirepoints.com:

One graphic perfectly captures the absurdity of Illinois pensions over the past three decades.

It’s what Justice Samuel Alito described as Illinois’ “generous public-employee retirement packages” when writing for the majority in the Janus v. AFSCME decision. “Illinois’ pension funds are underfunded by $129 billion as a result of generous public-employee retirement packages” he wrote.

Alito didn’t use the graphic below, but he could have because it makes his point.

In 1987, pension promises made to active workers and retirees in the state’s five state-run pension plans totaled just $18 billion. By 2016, they had ballooned to $208 billion.

That’s a cumulative 1,067 percent increase.

Contrast that to the state’s budget (general fund revenues) which was up just 236 percent over the same time period. Or household incomes, which were up just 127 percent. Or inflation, up just 111 percent.

Promised pension benefits have blown past any ability of the state, the economy or taxpayers to pay for them.

Read the report: Illinois state pensions: Overpromised, not underfunded

Wirepoints released a report on these booming benefits earlier this year, and while it received strong coverage online nationally, Illinois’ traditional media didn’t want to touch it. The findings interfere with the narrative that’s repeatedly promoted by public sector unions and politicians – that the crisis is all the taxpayers’ fault for failing to put in enough money towards pensions.

The report proved a lack of dollars wasn’t the issue. Illinois pension assets – buoyed by taxpayer contributions – also grew far faster than the same economic indicators in the graphic above. But taxpayer contributions could never keep up with the state’s explosive growth in promised benefits.

Overpromising is the real culprit of the pension crisis. Freezing and reversing that growth in promised benefits is the fair, and only, way to fix things.

The above graphic gives taxpayers every right to demand concessions from their public servants. The Janus ruling will hopefully give them more power to demand them.

And union members have a strong incentive to come to the bargaining table. After all, it’s their retirements that are teetering on the edge of insolvency in a state just one notch from junk status.

But If the unions won’t deal, Illinois should go ahead and freeze salaries, cut the subjects of collective bargaining, move to defined contribution plans, reduce headcounts and work with the feds on a form of state bankruptcy. With the constitution currently preventing any changes to pension benefits, those are the only levers taxpayers have to save this state from collapse.

http://www.wirepoints.com/janus-v-afscme-and-the-truth-about-illinois-pensions-in-one-graphic-wirepoints-original/

“Tesla, without any doubt, is on the verge of bankruptcy.” By Simon Black

Tesla’s stock market valuation disagrees with Simon Black, but SLL wouldn’t bet against him. From Simon Black at sovereignman.com:

Just a few days ago, shareholders of Tesla approved an almost comical pay package for their cult leader CEO Elon Musk that could potentially put $50 BILLION in his pocket over the next decade.

Let’s put this figure in perspective: at $5 billion per year, Musk would make more than every single CEO in the S&P 500. COMBINED.

In other words, if you add up the salaries of all the CEOs of the 500 largest companies in America, it would still be less than the $5 billion per year that Mr. Musk stands to earn.

That’s pretty astounding given that Tesla’s own 2017 4th quarter financial report (page 24) states that Elon “does not devote his full time and attention to Tesla”.

Or more importantly, that under Musk’s leadership, Tesla’s chronic financial incontinence has racked up more than $4.97 billion in operating losses for its shareholders.

Or that the company has been under SEC investigation (without bothering to disclose this fact to shareholders).

Yet they saw fit to reward him with the largest CEO pay package in the history of the world.

This is precisely the type of behavior that is only seen during periods of extreme irrationality when financial markets are at their peak… and poised for a serious correction.

I’ll close this brief letter today quoting John Thompson, Chicago-based value investor and Chief Investment Officer of Vilas Capital Management.

Thompson is one of the few hedge fund managers who has consistently outperformed the market, and his fund is betting big against Tesla. What follows are some passages about Tesla from Thompson’s recent investor updates:

I think Tesla is going to crash in the next 3-6 months. . .

. . . partially due to their incompetence in making and delivering the Model 3, partially due to falling demand for the Model S and X, partially due to the extreme valuation, partially due to their horrendous financesthat will imminently require a huge capital raise, partially due to a likely downgrade of their credit rating by Moody’s from B- to CCC (default likely) which should scare their parts suppliers into requiring cash on delivery (a death knell), partially due to the market’s recent falling appetite for risk, and partially due to our suspicions of fraudulent accounting activities, evidenced by 85 SEC letters/investigations and two top finance people leaving in the last month. . .

To continue reading: “Tesla, without any doubt, is on the verge of bankruptcy.”