Back in December of 2010 we published
a report in which well known bank and economic analyst Meredith Whitney
warned of the coming debt defaults of local and state governments:
It has tenticles as wide
as anything I’ve seen. I think next to housing this is the single most
important issue in the United States and certainly the largest threat to the
In less than a year the Capitol of the State that
once hosted the Constitutional Convention, Harrisburg, Pennsylvania, has
become the first major government body to file for bankruptcy:
The city of Harrisburg, Pennsylvania, facing a state
takeover of its finances, filed for bankruptcy protection following a vote by
City Council, according to a lawyer for the council.
Mark D. Schwartz, a Bryn Mawr,
Pennsylvania-based lawyer and former head of municipal bonds for Prudential
Financial Inc.’s mid-Atlantic region, said he filed the documents by
fax to a federal bankruptcy court last night. The filing couldn’t be
confirmed with the U.S. Bankruptcy Court in Harrisburg.
The state capital of 49,500 faces a debt burden five
times its general-fund budget because of an overhaul and expansion of a
trash-to-energy incinerator that doesn’t generate enough revenue.
“This was a last resort,” Schwartz said
in an interview after the council voted 4-3 to seek bankruptcy protection.
“They’re at their wits end.”
In a copy of the Chapter 9 petition provided by
Schwartz, the city lists both assets and debt of $100 million to $500
million. According to the copy, the city has 49 or fewer creditors.
The Pennsylvania Senate is scheduled to take up
legislation next week that would make Harrisburg the first municipality in
the state to be placed in receivership.
Most of the bond holders, just like those who held
debt in the now government and union controlled General Motors, will be wiped
out or forced to take reduced payments, which doesn’t bode well at all
for the municipal bond markets. Zero Hedge
And now that the precedent has been set (yes,
Virginia, it can be done) watch as tens if not hundreds of other
cash-strapped towns, cities, localities and other entities follow suit
promptly to quite promptly.
And now, spin time.
For those who thought government jobs and pensions
were safe from the economic contraction, think again. As cities and states
face budgetary problems amounting to hundreds of billions of dollars, their
only recourse will be to start cutting jobs and renegotiating pension
commitments. Meredith Whitney had a gloomy forecast for this as well,
claiming in June of 2010 that at least 2 million
government jobs would be eliminated as city councils and state legislators are forced
to tighten their belts.
Harrisburg is the first. It won’t be the last.
And, as we’ve opined previously, the States
are soon to follow with their own debt problems. While the Federal government
will likely step in with bailouts when we get to the State level, the real
question that should be on everyone’s mind is, who will bail out the US
government’s $150 trillion plus in future liabilities?
Written and published by Mac Slavo at www.SHTFPlan.com