Will the Global Slowdown Cause Some states to Default?

[william the wie]

Global GDP growth is slowing by a lot. There is also a good chance that Nancy Pelosi will raise taxes on the wealthy and cause a lot of problems for D states.

 

[task0778]

I don't think Nancy Pelosi can raise taxes all by herself, the GOP controlled Senate won't pass a tax hike and Trump wouldn't sign it even if they did. Interesting to see if the House will pass a tax hike though, that favors the rich guys in blue states; I wouldn't mind seeing that happen.

It does look like a global slowdown is in the offing, maybe because too many nations are spending too much money on social programs that they cannot afford. Which basically means if more money is going to the gov't to spend on welfare and the like, then less money is being spent in the private sector to grow the economy. There are other reasons for a GS, all of which are not going to ease the situation for blue states (or red ones) that are in some fiscal difficulty. Might be a stretch to say a GS would cause defaults though.

There's an interesting case in California over public pensions: in essence, public employees can buy future retirement credits, often at around 60 percent to 70 percent of their actual cost, thus significantly increasing their pension benefits. The Brown administration argued that this benefit was not a form of vested compensation that employees earned, but rather was something additional that they could purchase. They cited a lower-court ruling noting that “While a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension — not an immutable entitlement to the most optimal formula of calculating the pension.”

By pushing the issue, the unions have opened the door for the courts to evaluate the merits of the “California Rule.” It’s a great idea to eliminate the above practice, which is widely viewed as an absurd pension-spiking gimmick. But that alone doesn’t do much to alter the size of the state’s unfunded pension liabilities. The real question is whether the court will agree with the Brown administration and the lower courts and pare back the prevailing interpretation of the California Rule. Do employees have the right to a reasonable pension or one that’s so generous that it threatens the future of the cities, counties or state that employs them?

It’s unclear which way the court is leaning, but the Calpensions blog argued that the court may not “go big” in its decision. It might toss out the idea of buying credits for a bigger pension paycheck without allowing reductions in future pension benefits. If it doesn’t go big, the state will face a very big problem. If benefits for current employees cannot be cut, then what else can the state do other than allow municipalities to go bankrupt? In the Stockton bankruptcy case, federal Judge Christopher Klein ruled that cities can indeed cut pension benefits in a bankruptcy. However, that city chose not to cut those benefits, but instead offered a workout plan that raised taxes.

State’s Fiscal Fate in High Court’s Hands

Bottom line is, you cannot raise state taxes enough to cover the unfunded pension liabilities, not even close. So here's the deal: if the Dems keep the House and retake the Senate and the WH in 2020, you can bet your ass that federal tax dollars will go to bail out California, New York, Illinois, and every other state that is in fiscal distress. If that happens, fiscal insanity will reign and we are fucked.

 

[william the wie]

I like your post, But CA is no worse than 5th most financially shaky state, IL has been in actual non-bond default for more than two decades but cogent arguments can be made that CT, MA & NJ are in worse shape than IL (CNBC guesstimate) But other rankings hold RI as the absolute worst (MarketWatch guesstimate) plus several other guesstimates with at least slightly different rankings. Effectively all blue states, most swing states and some Red states are at real risk of default. Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out. The probability of a Blue state default crisis prior to the 2020 election is way over 50%. CA is generally seen as being in the lower fifth of the states

 

[Toddsterpatriot]

I like your post, But CA is no worse than 5th most financially shaky state, IL has been in actual non-bond default for more than two decades but cogent arguments can be made that CT, MA & NJ are in worse shape than IL (CNBC guesstimate) But other rankings hold RI as the absolute worst (MarketWatch guesstimate) plus several other guesstimates with at least slightly different rankings. Effectively all blue states, most swing states and some Red states are at real risk of default. Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out. The probability of a Blue state default crisis prior to the 2020 election is way over 50%. CA is generally seen as being in the lower fifth of the states

Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out.

What's the bid-ask spread?
How much is your borrow fee?

 

[Karl Rand]

I like your post, But CA is no worse than 5th most financially shaky state, IL has been in actual non-bond default for more than two decades but cogent arguments can be made that CT, MA & NJ are in worse shape than IL (CNBC guesstimate) But other rankings hold RI as the absolute worst (MarketWatch guesstimate) plus several other guesstimates with at least slightly different rankings. Effectively all blue states, most swing states and some Red states are at real risk of default. Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out. The probability of a Blue state default crisis prior to the 2020 election is way over 50%. CA is generally seen as being in the lower fifth of the states

Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out.

What's the bid-ask spread?
How much is your borrow fee?

Have you any idea of the potential effect on the market posting such suggestions may have?
Maybe though you’re counting on it? Like whispering ‘United Petrolium found zinc on that lease” in the exchange lift just before opening bell.

 

[Pilot1]

Where are you seeing a global slowdown?

 

[Toddsterpatriot]

I like your post, But CA is no worse than 5th most financially shaky state, IL has been in actual non-bond default for more than two decades but cogent arguments can be made that CT, MA & NJ are in worse shape than IL (CNBC guesstimate) But other rankings hold RI as the absolute worst (MarketWatch guesstimate) plus several other guesstimates with at least slightly different rankings. Effectively all blue states, most swing states and some Red states are at real risk of default. Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out. The probability of a Blue state default crisis prior to the 2020 election is way over 50%. CA is generally seen as being in the lower fifth of the states

Short selling zero coupon bonds from nearly any blue or purple state is a fairly safe speculation as long as maturity is at least five years out.

What's the bid-ask spread?
How much is your borrow fee?

Have you any idea of the potential effect on the market posting such suggestions may have?
Maybe though you’re counting on it? Like whispering ‘United Petrolium found zinc on that lease” in the exchange lift just before opening bell.

You're talking to the wrong guy.

But as long as we're talking, do you think mentioning that fact that, say Illinois, is in really crappy fiscal shape, is going to have a negative impact on Illinois? Is that spreading a scurrilous rumor? Or is it true?
And how active do you imagine the market for "zero coupon state debt" is?

 

[william the wie]

In reports from China and the EU. The US has suddenly become a safe haven and that is growing