Wednesday, December 8, 2010

"Blue State Armageddon On The Way"

How the "meltdown" goes nuclear.

If things go wrong in the markets for blue state debt, watch out. If big blue states like New York, California and Illinois hit a point of market failure when private investors will no longer buy their bonds, Washington will have to decide what to do. Fast.

It will be ugly, and it will hurt.

Will GOP legislators bail out the public sector unions and shovel cash into the maw of improvident and badly managed blue states like so many steaming German taxpayers bailing out the lazy Greeks? Or will Congress sit on its hands while vital state services close down, unemployment spikes, and the financial markets panic? Will all parties turn to the Fed to buy up state bonds? If so, on what conditions and terms?

While an unprepared, polarized Washington argues, markets will be melting down. Risk unnerves bondholders; the sight of clueless debates among angry politicians makes markets unhappy in good times. In times of crisis this is a scenario for total panic.

It’s hard to overstate the havoc that a meltdown in the state and municipal bond market would cause. Many private investors and retirees are heavily invested in securities long thought safe. Worse, many pension funds, including state pension funds, have large positions in the muni market. The meltdown could feed on itself as falling bond prices would undermine state pension fund reserves and raise the interest rate on new debt issues. The panic will intensify and spread, sucking new states into the maelstrom — as more and more European countries have been affected by a crisis once limited to Greece.

Bond investors are much more skittish than stock buyers. Any risk of default sends them running for the exits. Without swift federal action, a crisis in the market for some cities and states would inevitably lead to sharp spikes in interest rates for other state and city governments whose positions suddenly looked risky. Massive layoffs of government employees would be inevitable in a widening range of affected states, throwing the weak recovery off course and quite possibly bringing on the much-feared second dip of the recession. Many banks and other financial institutions like insurance companies hold significant portfolios of state debt; if those bonds tank in value, we could go back to the darkest days of the financial crisis of 2008 as big banks and insurance companies come running to Uncle Sam for more bailouts.


SavaShip said...

Message heard.. I am bailing out of Illinois as I type this.

Burt Gummer said...

Food for five years, a thousand gallons of gas, air filtration, water filtration, Geiger counter. Bomb shelter! Socialst... God- damn monsters.

Anonymous said...

And from this meltdown, could we see waves of refugees fleeing to other states?

Anonymous said...

Austerity is Coming to Town
(Sung to the Tune of "Santa Claus is Coming to town)

You better watch out
Get ready to cry
Get ready to pout
I'm telling you why
Austerity is coming to town!

If you're on the list
No need to check twice;
Gonna find out that cutbacks aren't nice
Austerity is coming to town!

You can't avoid it sleeping
It's worse when you're awake
Don't matter if you're bad or good
You'll be cut for goodness sake!

O! You better watch out
Get ready to cry
Get ready to pout
I'm telling you why
Austerity is coming to town!
Austerity is coming to town!

aughtsix said...

There will be no "blue state" Armegeddon.

Just as there is no such thing as little bit pregnant.


Dennis308 said...

Why would anyone be holding any type of Government Bond, Every responsible Economist that is worth listening to has been telling us that these bonds would be WORTHLESS is short-order, DUH!


David III said...

The sooner this shit hits the fan the better, we are just getting deeper in every day, let's get this over with and rebuild the Republic as it was intended to be!

Anonymous said...

They stay in Government bonds because they still believe it the system that has given them so much for most of their lives. The media and Government still tells them that everything is going to be O.K. We have tried to talk to them but they are our elders and we just shake our heads and plan to take care of them. A porch, their place to live. food stored but planned gardens. Try to get them to buy some firearms so we can plan on augmenting what we have but that is iffy (even though we are in the South!)

They look around and still mostly everything looks normal but they still can't understand why we have not been able to do better that struggle for most of our adult lives. They helped us when we needed it and we plan on being there for them when they loose everything (over 250k in the last two months.)

We love them and pray that we don't loose them because of the lies and changing world. We can still learn much from them and our children gain from having them around.

We can see what is coming. We can smell it and taste it. But other in our families can't. It was the same in Noah's time and every other we can name. All we can do is try our best to save the few closest to us and home that we have the community around us to hold the world back to give us the chance to start to build the new world what ever that will be.

But that is why people are still in bonds....

God bless them because they still believe the world is better than it is which is equal amounts blessing and curse. There is always the chance we are wrong but I see that being less and less of a chance every day...

Take care all,


Anonymous said...

Living here in the State formerly known as "The Republic of California"......


Shit! Should've left when I had the chance...oh a wise man once said, "We're screwed...there's gonna be a fight...let's win".

Semper Fi

Dave said...

I read recently that Commifornia is borrowing $40 million per day to stay in business. Excessive government regulation has forced most legitimate businesses out of Commifornia (companies who hire illegals are still here of course). Marijuana is Commifornia's number one cash crop. Normal, hard-working law-abiding Americans are leaving Commifornia. So who will repay all this debt? The illegals, who demand everything free and don't pay taxes? I don't think so! Talk about a bad investment...

MamaLiberty said...

"vital state services" Oxymoron statement of the decade.

There is no such thing as an essential "state" service.

I recently was told that there IS a cure for stupid... but it often involves commiting a felony.

But sometimes....

Toastrider said...

While the 'home office' of the company I work for is located in Chicago, the word is out that they will be relocating.

The big cheese himself had some hard words about Illinois politics during his visit to our plant this past Monday. Should be interesting.