Why States Should Cut Up Their Credit Cards

Coast to coast, states are leaving taxpayers on the hook for massive debt payments over the coming decades as state governments continue to abuse their metaphorical credit cards.

A new report released last week says state governments have more than $5.1 trillion in debt, largely because of pension obligations to former and current state employees, which states now lack the assets to pay off. Pension debt accounts for more than $3.9 billion of that total, but the report also includes outstanding bonded debt, unemployment compensation trust fund debt and debt in the form of “other post-employment benefits,” or OPEB, which is closely linked to pensions and includes retired public employees’ health-care costs.

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The Fed Must Inflate

The Fed is busy doing everything in its considerable power to get credit (that is, debt) growing again so that we can get back to what it considers to be “normal.”

But the problem is that the recent past was not normal. You may have already seen this next chart. It shows total debt in the U.S. as a percent of GDP:

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Are You Prepared for a US Bank Bail-In?

If you have cash in a US bank, you can expect to have the federal government take it all the next time US banks find themselves in trouble.

The days of the federal government stealing money from taxpayers, or borrowing it from the Federal Reserve, to save troubled banks — as in they did in the 2008 crisis — may be over. Congress is considering imitating the theft in Cyprus and letting troubled banks “bail-in” depositor money in order to make themselves solvent.

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US Credit an Unfaithful Hussy

Washington, D.C. – A tragedy is brewing in the United States. Within a decade, the country that has gone from the second freest in the world to the 17th. And the threat is much worse than the federal government’s current 20% shutdown.

If Congress does not increase the debt ceiling (as it has done more than 100 times since 1917), the government may default on its debt later this month.

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So Where’s the Hyperinflation Already?

The Federal Reserve has grown the monetary base from $827 billion to $3.1 trillion in five years. At the same time banks have stuck $2 trillion more than required in reserves at the Fed. This money lays around fallow, earning just 25 basis points from the central bank. A blossoming to its full potential would mean $20 trillion in new money, eviscerating Ben Bernanke’s deflation fears.

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S&P Says U.S. Debt Is “Stable”, Really.

Big News: Standard & Poor’s upgraded the U.S. credit outlook this morning from “negative” to “stable.” The ratings agency cited an improvement in U.S. deficit projections and higher tax receipts. Markets barely noticed.

“We now see… government debt as a share of GDP staying broadly stable for the next few years,” the agency reported. “[This stability] would allow policymakers some additional time to take steps to address… age-related spending pressures.”

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Don’t Call it a Bubble…

I jumped on the housing market recovery back in 2011.

Homebuilders had been locked in purgatory for more than five years. They overbuilt (massive understatement there, I know) during boom times. When demand fell off a cliff, they were forced to sit around and lick their wounds.

So they waited. Some even strategically bought land at a deep discount. And when homebuilders looked to be bottoming in late 2011, I turned bullish. The decision sparked a lot of hate mail. There’s no new housing boom… The bottom’s going to fall out again… How could I be so stupid?

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True?…or Not True?

Let’s play a little game of “True/Not true.” We ask the question and you answer, “True” or, “Not true.”

1) Two police officers in Colorado lost their jobs and face felony charges for shooting an elk.
2) Two police in Washington State lost their jobs and face felony charges for shooting a man in his bed 16 times.
3) America spends more money on the TSA each year than the nation of Nicaragua earns.
4) Pubic “crabs” are becoming endangered by Brazilian bikini waxes.
5) The sequester that began last Friday will cut the national debt by $85 billion this year.
6) Witches read The Daily Reckoning.

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S&P On the Kill List

“Paybacks are a bitch,” as they say.

What was Standard & Poor’s thinking back in August 2011, when the ratings agency took the Red, White, and Blue’s AAA rating away? A rating the most powerful government in the history of the world had held for 70 years. S&P downgraded long-term US debt to AA-plus. That score ranks lower than over a dozen governments, including Liechtenstein’s, and is level with Guernsey’s and France’s.

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Insured Lives Sometimes Commit Suicide

Moral hazard is a term with specific meaning in the financial community.

Originally the phrase was mainly used to describe a phenomenon within the insurance industry related to the uncertainty about the honesty of those insured.

Premium writers have at times noticed that a few who buy insurance lose any incentive to minimize risk, correctly thinking this has been laid off on the company writing their policy.

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