Aware Brain

Municipal budgets have been a common subject on this blog. In fact, I expect that the first real crisis felt by most Americans will come from the effects of government budget cuts, and how they will impact services which people rely on.

Many inside local government are already seeing this looming crisis. Today’s example comes from Waterford CT. It is a textbook scenario of how this issue is playing out.”The day of reckoning is here,” the towns finance board member Georg Peteros said. After decades of huge tax payments from a regional nuclear power plant, the town still finds itself with a deficit, due to not planning for ever having lower revenues. “We really squandered an opportunity,” said First Selectman Tony Sheridan.

In the future, the town must address the largest expense in the budget: employee salaries and benefits. ”We’ve already squeezed all the fat out of the budget going after supplies,” he said. Peteros predicts that as town departments scramble for funds in future years, it could make Waterford a more politically charged town. ”I can see politics becoming more contentious as residents become more agitated as their tax rate goes up,” he said. “Dark days” are ahead, as he put it.

The White House is anticipating another blow to the economy when jobless figures are released on Friday. The administrations economic advisor, Larry Summers is trying to buy some time by pinning the results on the weather, asking Americans to ignore these figures.

“The blizzards that affected much of the country during the last month are likely to distort the statistics. So it’s going to be very important … to look past whatever the next figures are to gauge the underlying trends,” Summers said in an interview with CNBC.

What will the answer be if employment figures are still bad in March?

As early as 2008, government an business leaders were pointing out signs that the Great Depression II was ending. There was talk of “green shoots” of recovery, stabilizing of the economy, and predictions of improved home sales, employment, and retail sales.

In 2009, any remotely positive move in any economic figure was a sure sign that everything was fine. The slightest upward blip on the radar screen magically erased all of the disaster of the past 5 years.

So how has this worked out. Well, for one thing it got consumers spending more money. Consumer spending was up in January, according to government figures.

” …consumer spending rose 0.5% to a seasonally adjusted annual rate of $10.3 trillion for the first month of 2010….”

But was this a good thing? During this same period, incomes actually fell.

“…..after-tax incomes fell 0.6% on the month, It was the largest decline in real disposable incomes since July, just after a one-time stimulus payment to seniors…….”

So while consumers had less money, they spent more. Isn’t this what got the economy into the whole mess to begin with?

So what about the the real estate market? It is improving, right? Well, maybe it was for a few seconds. Mortgage delinquencies are back on the upswing after a brief pause. According to Equifax, more homeowners are falling behind on their mortgages, jeopardizing the nascent housing recovery and raising the possibility that home prices have not found their bottom but could instead fall further.”Did we just see a headfake?” Equifax President Dann Adams asked. “Things looked really promising, but the January numbers say wait, there’s more to this story.” “This wasn’t just a small uptick,” More than 8 percent of homeowners were behind 30 days or more on their mortgage loans, up 4.4 percent from December 2009 and 21 percent from last January.

“The number of homeowners who are at least 90 or 120 days late on their mortgages also continues to rise, Adams said. ”There’s more foreclosures in the wings.” “There is a large segment of homes that are going to enter foreclosure in the next 3 to 6 months, which then puts more pressure on home prices”

Let’s see how the next batch of employment numbers looks.

“The recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.” Housing starts and motor vehicles were “dead in the water.” He also said small businesses show few signs of improving because lenders are struggling with commercial real estate mortgages.”

His successor seems to agree:

“A lot of things happened, a lot came together, [and] created probably the worst financial crisis, certainly since the Great Depression and possibly even including the Great Depression,” Bernanke said

“The number of mass layoffs by U.S. employers edged up in January as manufacturers stepped up job cuts.A total of 182,261 workers were affected last month. In January, 486 mass layoff events were reported in manufacturing, resulting in 62,556 workers filing claims for state unemployment benefits. It was the first increase in mass layoffs in manufacturing since August.”

The optimism once held by many Americans has been “beaten out” of them amid a lagging economy, threat of terrorism and two ongoing wars, according Emory University.”All of those things … have made people start to be much more doubtful than they used to be,” says Patrick Allitt. The decline of American confidence isn’t just a temporary blip on the screen brought on by the recession. People who were brought up in the 1930s during the Great Depression — the image of it stayed with them for a lifetime. … In the same way, I expect the kids who have grown up in the last few years are also going to carry the marks of this with them through life.

“Consumer confidence took a swan dive in February to its lowest point since April, according to a monthly poll released Tuesday. The index plunged to 46 from January’s 56.5, following several months of boosts, according to the Conference Board. The economy is stable only when the reading surpasses 90.”

The world’s most powerful investors have been advised to buy farmland, stock up on gold and prepare for a “dirty war” by Marc Faber, who predicted the 1987 stock market crash. The bleak warning of social and financial meltdown, delivered today in Tokyo at a gathering of 700 pension and sovereign wealth fund managers. Dr Faber, who advised his audience to pull out of American stocks one week before the 1987 crash and was among a handful who predicted the more recent financial crisis.

“The next war will be a dirty war,” he told fund managers: “What are you going to do when your mobile phone gets shut down or the internet stops working or the city water supplies get poisoned?” His investment advice, which was the first keynote speech of CLSA’s annual investment forum in Tokyo, included a suggestion that fund managers buy houses in the countryside because it was more likely that violence, biological attack and other acts of a “dirty war” would happen in cities.

The already gloomy conditions of states’ economies are set to worsen, according to preliminary survey findings from the National Governors Association released on Saturday. “The situation is fairly poor for a lot of states around the country. In fact, most states,” Vermont Governor Jim Douglas, who is chairman of the association, said at a press conference at its annual meeting. “What we’re finding out from a fiscal standpoint is that the worst is yet to come,” Douglas said.

“Neighborhoods hit so badly by foreclosures that Habitat for Humanity is buying the houses, now costing less thanwhat Habitat would spend building a new one.”

Flashback, 2008: “Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements. Signs of physical and social disorder are spreading. Graffiti, broken windows, and other markers of decay have multiplied. Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, “There’s been gang activity. Things have really been changing, the last few years.” Residential burglaries rose by 35 percent and robberies by 58 percent in suburban Lee County, Florida, where one in four houses stands empty. Police departments are mapping foreclosures in an effort to identify emerging criminal hot spots. These days, when Hollywood wants to portray soullessness, despair, or moral decay, it often looks to the suburbs—as The Sopranos and Desperate Housewives attest—for inspiration.”

Reigning in the deficit will be nothing short of a “suicide mission” for the people charged with the task, Alan Simpson, co-chair of President Barack Obama’s bipartisan Deficit Reduction Commission, told CNBC Monday. “We will get it from all sides, the right, the left, but the people of America know that something is very, very dysfunctional,” he said. “The

http://travel.webshots.com/photo/1177981308058750440kxqtPo

word ‘entitlement,’ to think you are entitled to something from your government regardless of your net worth or your government is just BS,” said Simpson.

At the state level, it is just as bad. “Doomsday is here for the state of Illinois,” said Laurence Msall, Civic Federation President, to the Sun-Times. “The Civic Federation wants to launch an intervention that includes significant budget cuts and the largest tax increase package in Illinois history, all in an effort to save the state from a $12.8 billion budget deficit. The state watchdog group calls for ‘historical’ increase in personal income tax.”

Some are predicting it will result in Americans experiencing “ordinary human poverty”. Sharon Astyk is a writer who observes thes things. “Our collective crisis seems to play out this way no matter what element – financial collapse, energy prices, food crisis…whatever is in ascendence, we end up in the same final outcome.  Expecting growth in the housing market is a lot like expecting growth in the VCR market – the moment is past We could make much the same analysis for many other segments of the economy.  Whence the high paying NYC and other urban restaurants that depend on high finance types buying expensive meals?  Poof!  Whence travel and tourism in an era of unemployment and rather inexplicably rising gas prices.”

High net worth investors and ordinary citizens both are feeling the effects of municipal budget crisis’s.

This week the city of Tracy CA will start charging its residents up to $300 to call 911 in an emergency.

At the same time, corporations and investors who have lent money to local governments by purchasing municipal bonds are warned that a “bloodbath” of government bankruptcies might wipe them out. “At least some classes of bondholders must share in losses along with other creditors,” the rating agency Fitch said.

An attorney working on the credit crisis of one city considering bankruptcy said: “Any plan is going to impair all classes of creditors, including bondholders.”

“The worst probably is yet to come,” warned Gov. Jim Douglas, R-Vt., chairman of the National Governors Association, at the group’s meeting Saturday. He called the situation “fairly poor” in most states, adding that it “doesn’t look too good.” States face budget holes totaling $134 billion over the next three years, according to the governors, who explained that tax collections keep declining as Medicaid costs soar. High unemployment persists. States cut 18,000 jobs in January alone and more job losses are anticipated. Because states are required to balance their budgets, shortfalls will be made up by raising taxes or fees or cutting services.”

A Palm Beach Post survey of 26 local pensions reveals a $431 million gap between expected payouts and how much money is on hand for area firefighters, police officers and city and town retirees. For towns and cities that pledged to get retirees their money, the current shortfalls remain “a ticking time bomb,” said West Palm Beach City Commissioner Kimberly Mitchell. That’s because the city’s share of pension funding will have to come from somewhere, and under Florida law, that somewhere is the cities, towns, and sometimes counties and special districts that offered pensions. Taxpayers are squarely on the hook, said Dominic Calabro, president of Florida TaxWatch, a Tallahassee watchdog group. ”Frankly, citizens don’t understand it until they are faced with tax increases,” he said. “But even some city officials don’t fully appreciate it.”

 For years, the town of Hanna, Wyo., only had one grocery store. Late last month, that store closed its doors. It was one more casualty of the bad economy, and it’s a blow to a town where jobs are scarce and a snowstorm can close roads for days at a time. A few days before his store shut down, Andy Jones surveyed the aisles at the Hanna Food Mart. He’d stocked and swept and managed the place for a decade, but now the store was emptying out. ”There’s not much left on the shelves right now,” he said.

With the Hanna Food Mart gone, there will be nowhere in town to buy bread or milk. There’s not even a regular gas station in Hanna — just a couple of credit-card-only gas pumps. A simple mini-mart is 20 miles away. The nearest grocery store is an 80-mile drive, round-trip, but a lot of people in Hanna can’t get around that easily.

“It’s bad,” says 82-year-old June Webster. “I walk to the store maybe two to three times a day.”