Fed to States: "Drop Dead"

Dees Illustration

Ellen H. Brown
Web of Debt

“Ford to New York: Drop Dead,” said a famous headline in 1975. President Ford had declared flatly that he would veto any bill calling for “a federal bail-out of New York City.” What he proposed instead was legislation that would make it easier for the city to go bankrupt.

Now the Federal Treasury and Federal Reserve seem to be saying this to the states, which are slated to be the first ritual victims in the battle over the budget ceiling. On May 2, Treasury Secretary Timothy Geithner said that the Treasury would stop issuing special securities that help state and local governments pay for their debt. This was to be the first in a series of “extraordinary measures” taken by the Treasury to avoid default in the event that Congress failed to raise the debt ceiling on May 16. On May 13, the Secretary said these extraordinary measures had been set in motion.

The Federal Reserve, too, has declared that it cannot help the states with their budget problems -- although those problems were created by the profligate banks under the Fed’s purview. The Fed advanced $12.3 trillion in liquidity and short-term loans to bail out the financial sector from the 2008 banking collapse, 64 times the $191 billion required to balance the budgets of all 50 states. But Fed Chairman Ben Bernanke declared in January that the Fed could not make the same cheap credit lines available to state and local governments -- not because the Fed couldn’t find the money, but because it was not in the Fed’s legislative mandate.

The federal government can fix its own budget problems by raising its debt ceiling, and the too-big-to-fail banks have the federal government and Federal Reserve to fall back on. But these options are not available to state governments. Like New York City in 1975, many states are teetering on bankruptcy.

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Cronyism and Dictatorship in Michigan (Video)

Activist Post 

In this clip, Rachel Maddow naturally uses left-right political labeling to explain the situation.  Beyond this, however, the situation in Michigan is truly as alarming as she states.  The cronyism is on full display as Governor Rick Snyder will raise taxes on the backs of seniors and the poor by eliminating tax breaks, as well as income tax deductions for such things as donations to public universities. The $1.7 billion that is projected to be saved will immediately be given over to corporations as a $1.8 billion tax break, resulting in a less-than-zero benefit to the state of Michigan.

Even worse, in the case of "financial emergency" (which Snyder himself can create by cutting funding to cities and towns) the Governor becomes a de facto dictator of the state with the power to unilaterally choose his own local governments by employing financial overseers to determine fiscal health, then offer the remedy.  It would be a perfect microcosm of Problem-Reaction-Solution except for the fact that there will be no need for even a reaction; it's just straight from problem to solution with the Governor of Michigan as the creator of both -- the essence of a dictatorial policy.

Maddow correctly calls this out for what it is: using a "crisis" to push an agenda that would never be accepted without the declaration of a crisis situation. 

Predictably, the protests have begun, but they need to become a lot more vocal, or it won't only be a eulogy for unions being given; it will be a eulogy for the state of Michigan.



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11 State Pension Funds that May Run of Out Money

Provided by The Business Insider, October, 18, 2010:

Here's a shocker: The most immediate state pension crises aren't in New York or California. They're in Middle America.

When it comes to state pensions in the most trouble, do places like New Hampshire come to mind? Probably not, unless you live there, and maybe not even then.

After all, it makes sense that the biggest, most populous members of the union, where budget follies are fairly common, would be facing the most urgently needed fixes. The truth is considerably different. The Granite State claims the No. 11 slot, and it's not the only unexpected name facing pension woes.

Hawaii, Kansas and others made their way on to the list. Now, these pension plans aren't going to be obliterated tomorrow -- New Hampshire, for instance, is estimated to see its plan run out of money in 2022, so they've got 12 years to rectify the situation.

For some other states, the matter is more pressing, and no more so than for the Land of Lincoln.

Illinois is just 8 years away from exhausting its pension fund and creating a yearly $14 billion hole, according to data from Joshua Ruah an associate professor of finance at the Kellogg School of Management at Northwestern University.

That's a projected 32 percent of the state's revenue going to fill a pension hole. Every year.

Indiana, Louisiana, Oklahoma and Colorado are among the next pension funds to fall. The rest of the union is just around the corner.

But wait. Just to make sure the list is not a complete surprise, know that the New York City suburbs of Connecticut and New Jersey made it on board. They have until 2019 to sort it out.

And Now, 11 State Pension Funds That May Run of Out Money 

#1 Illinois

Year pension fund runs out: 2018

Bill in the following year: $13.6 billion

Share of state revenue: 32%

#2 Connecticut

Year pension fund runs out: 2019

Bill in the following year: $4.9 billion

Share of state revenue: 27%

#3 Indiana

Year pension fund runs out: 2019

Bill in the following year: $3.6 billion

Share of state revenue: 17%

#4 New Jersey

Year pension fund runs out: 2019

Bill in the following year: $14.4 billion

Share of state revenue: 34%

#5 Hawaii

Year pension fund runs out: 2020

Bill in the following year: $1.7 billion

Share of state revenue: 24%

#6 Louisiana

Year pension fund runs out: 2020

Bill in the following year: $4.3 billion

Share of state revenue: 27%

#7 Oklahoma

Year pension fund runs out: 2020

Bill in the following year: $3.7 billion

Share of state revenue: 30%

#8 Colorado

Year pension fund runs out: 2022

Bill in the following year: $7.8 billion

Share of state revenue: 54%

#9 Kansas

Year pension fund runs out: 2022

Bill in the following year: $2.5 billion

Share of state revenue: 23%

#10 Kentucky

Year pension fund runs out: 2022

Bill in the following year: $5.3 billion

Share of state revenue: 35%

#11 New Hampshire

Year pension fund runs out: 2022

Bill in the following year: $1.0 billion

Share of state revenue: 30%

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US Cities Face Half a Trillion Dollars of Pension Deficits

Nicole Bullock  
CNBC 

Big US cities could be squeezed by unfunded public pensions as they and counties face a $574 billion funding gap, a study to be released on Tuesday shows.

The gap at the municipal level would be in addition to $3,000 billion in unfunded liabilities already estimated for state-run pensions, according to research from the Kellogg School of Management at Northwestern University and the University of Rochester.

“What is yet to be seen is how this burden will be distributed between state and local governments and whether the federal government will be called upon for bail-outs,” said Joshua Rauh of the Kellogg School.

The financial demands of unfunded pension promises come as state and local governments grapple with years of falling tax revenue related to the recession.

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