Wednesday, January 19, 2011
The US economy and the unfolding municipal nightmare
I've written often before about the parlous state of the US economy. It's now unraveling on a new front, one that's been under the radar for a long time, but has recently burst into prominence. That front is municipalities: cities and towns all across America that are going, or are already effectively, bankrupt.
I'm not going to write a long screed about it: I'll just point you to a number of articles from the last month or so, all of which, taken together, sum up the problem nicely.
- Municipal debt has become another financial 'bubble' - and it's about to burst;
- Demand for municipal bonds is crashing, as is their price;
- With municipal bond prices dropping, many cities can no longer afford to raise new funds through bond issues, which means their borrowing power has been cut to effectively zero;
- 100 American cities owe some $2 trillion between them;
- 16 US cities may go bankrupt this year;
- Some experts think that many US cities are on the brink of financial default, and many are examining bankruptcy as a possible solution to their woes. Three cities already mentioned as likely candidates are Pritchard, Alabama; Pittsburgh, Pennsylvania; and Hamtramck, Michigan. State-level bankruptcy is even being promoted as perhaps the only way to break exorbitant contracts with unions, which are one of the primary reasons that bankruptcy threatens cities and states.
- Desperate for new sources of revenue, cities are slapping taxes on everybody and everything in sight, even those previously considered exempt.
I urge you to read the articles linked above for yourself; then, examine the financial health of your own home town. If it's as parlous as some of those mentioned above . . . you might want to move, before things get worse!
Oh - and do choose your destination city (and state, for that matter!) very carefully, won't you? Please?