Fall of the American Empire – Update Dec. 23, 2010
http://nesaranews.blogspot.com/
America is approaching economic collapse. The big problem appears to be coming from Municipal Bonds which may soon be going into default. Municipals are bonds issued by Cities and States, not Federal Bonds. The Fed is selling their own bonds to themselves by having the Federal Reserve Bank buy the Treasuries which is a joke amounting to nothing more than plugging up holes in the dyke with your fingers. Sooner or later you run out of fingers. Then the leaks start and eventually you need to withdraw your fingers and run away lest you get drowned.
States are in trouble. Arizona has sold twenty of their buildings to private investors for $735 million. This will only get them through fiscal 2010. The buildings sold included the State Capital. The state has agreed to lease purchase back the buildings allowing them to own them again in twenty years. Basically this is more borrowing.
California is following Arizona but on a grander scale. Their Governor has asked the California Supreme Court to decide on the sale of 24 state office buildings. The Supreme Court of Calif. recused itself since they occupy one of these buildings. Instead they sent it to some appeals court judges to decide. Arnold the Governor wants to sell the properties for $1.2 billion in a sale leaseback. The sale may be halted and not go through. If the sale goes through it would probably last California for one year. Then what do they do? Sooner or later they will run out of buildings. Doom and Gloom.
The States and Cities in many instances are spending more than they take in. This is called a deficit balance. They have lots of bonds out there. If they default on these bonds they hurt the investors but can keep going by not spending money on interest payments. This allows them to keep afloat another year while they continue to play the “I Hope Game”. This game is where they keep trying desperate measures hoping they find a way out of the mess. The next way out is to default on pensions. Bond defaults and pension defaults can be done through a bankruptcy. If they go for a wipeout bankruptcy then all their assets go to the bankruptcy trustee for liquidation and distribution to the creditors. This is an extremely unlikely scenario. Instead they will go for a repayment plan. They take their debts and line them up with the amount of income they have after operating expenses that are necessary (think electricity, payroll, things like that) and what is left over gets paid to the creditors. They can arrange debts according to priority or secured creditors and unsecured creditors. This could mean that bond holders may wind up with a small percent of their interest payment. This could be as low as 1% but usually is at least 10%. The pensioners can be treated in a similar fashion but they might get say 50% or 60%, not sure. Each bankruptcy is going to be different. Bear in mind that the bond holders that suffer losses will flow over into the general economy dragging it down. It will also ruin the bond ratings of just about every jurisdiction making them pay higher interest rates. Reducing the pensions of the retirees will also hurt them and thus they will spend less etc and the economy in general suffers from this as well.
What is Build America Bonds. Well this is a little known Fed program where they subsidize the interest expense for the municipal bonds at 35% which is substantial. This means the jurisdictions only pay 65% of the bond interest, the fed pays 35%. Munibond issuance for 2010 was $422 billion. Now mind you there are all those older bonds out there with interest payments on them to deal with. This Build America Bond program expires at the end of Dec 2010 and they do not seem to have any intentions on renewing it. Hmmm.
The other interesting thing is that the municipal bonds are going to get harder and harder to sell for many jurisdictions. They will be needing to pay higher interest rates thus more debt they cannot pay back will be added in if anyone buys their bonds. China some months back told their banks to stop buying any municipal bonds just federal bonds are allowed. The jurisdictions have run out of time and they will start defaulting and taking serious measures in 2011. City, County and State revenues are down. People are out of work thus higher unemployment payouts and lower payroll taxes. The bad economy caused a retail sales downturn thus lower sales tax revenue. Real estate values down by say 40% thus property taxes down by same amount due to revaluation of property for property tax purposes. This is their mess. At the same time the bond interest payments and pensions need to be paid and there is just no money to do so with. Many businesses are waiting months to be paid by these jurisdictions. Eventually private suppliers will not extend credit to any of these jurisdictions and then they go into default. This has already begun and we will be seeing this in 2011 in perhaps 100 different cities, counties and states.
Layoffs are a necessity for these jurisdictions. Services need to be curtailed sharply. This will help but it is the pensions and benefits for retired workers that are really choking them. Layoffs have no effect on this. The way to get rid of this debt load is to renegotiate the pensions and this has rarely ever worked well enough for the jurisdictions to bail themselves out. The other way is to file bankruptcy and this has been done a little bit so far and is a successful remedy. Well successful in that it lets the jurisdiction stay alive a bit longer but it can devastate the retirees financially. There is no real end in sight for these jurisdictions. It is a game they are playing hoping to drag out the inevitable.
What will the Fed do? Well if they come in with a bailout it means printing more money. This will start to downgrade the fed bond rating further. China has already downgraded their bond rating. It will also cause more foreign countries to avoid using the USD since it would be watered down even more. The more they water it down, the more foreign powers move away from it. This cheapens the value of the dollar pushing us closer to hyperinflation. Hyperinflation can be thought of a version of end game. Imagine gasoline at $29.00 a gallon or even $98. Wages never go up fast enough to keep place with hyper inflation. The people get propelled into the status of the working poor very rapidly. People will not be able to afford to commune to work. Black markets pop up all over the place using precious metals, barter etc. The government starts to be more and more ignored. The employees of the fed get disgruntled and then low level corruption sets in. Basically it is a painful end game. Riots, food shortages, utilities fail, medical shortages, people consider the currency worthless, crime soars, gangs take control in some areas and it falls apart. Mind you in can go to gasoline for $235 a gallon easily. In the past in some countries people took a wheel barrel shopping to carry their money to the store for groceries. Imagine carrying a shopping bag full of money to buy groceries.
There is another alternative to hyper inflation and it is called communism. What they do is issue price freeze orders to stop hyper inflation. Raise your prices over what they were on the date of the order and get caught and face prison and/or financial penalties. Now the Federal Reserve Notes are money that is only going to be practically used inside the borders. Foreign commerce will be done in other currencies or the Fed may issue another currency backed by something for foreign commerce. This different currency will not be available for domestic commerce. The lockdown of the borders will intensify slightly. Most will not be able to afford foreign air travel. They will make an exit visa a requirement and they will be tight with these. Probably only changes you will see. CNN and the others will assure everyone all is well and not to worry. They will proceed with population reduction through gmo food, Obama Care, vaccines, harmful medicines etc. It will be a slow process taking many years. They probably have intricate plans worth of any devoted psychopath for all of this. The problem with this is the people may decide to rise up and then it is end game for them and the people. The hyper inflation model is one they can sell by saying oh we have to pay for all the excessive spending we did. It plays well to those who do not understand.
Please remember that the elite rarely get things to go their way. We the people will probably never let them have their way. Too many people understand their illegal actions, methods and ways. The elites probably want out but are so committed they have no way out but to fly through the storm. I doubt they make it through.
http://www.panamalaw.org/fall_of_the_american_empire_12-23-10.html
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