The bold emphasis is mine in the article below. Think about it for a minute, the States are just as bankrupt, morally as well as financially, as our Federal government. The problem they have that the Federal government does not have is access to a printing press. They must either balance their budgets or float debt offerings to the market. The market is listening to Meredith Whitney and others that are saying the States cannot ever pay off their debts, nor intend to. The result is prohibitive interest rates that the market will require to provide the much needed capital. The states cannot go there and require low interest rates to remain solvent.
Enter the Fed and its network of primary dealers. They are more than happy to extend credit to the States at low interest rates because they can do quite well by doing so. See, the primary dealers have a cozy relationship with the head of their cartel, the Federal Reserve. They can borrow all the money they need from the Fed at essentially zero interest rate and then extend that new money to the States in the form of bond purchases at an interest rate that is palatable. The spread between .25% the Fed charges and whatever they get from the bond purchase is gravy. Here’s the kicker; if they ever suffer the possibility of a State default, they are TOO BIG TO FAIL and will be bailed out by the Fed. It is a win-win situation.
So, the market that has to consider the solvency and ability of the States to make good on their debt commitments, and they abandon the States. The primary dealers step into the breach to provide the rope for the States to hang themselves, an d in the process of doing get richer with no risk whatsoever.
Are you ready for a revolution? An election is coming, will you vote for the status quo or will you vote to blow this corrupt system to Hell?
Minnesota Joins New Jersey In Insolvency, Shuts Down, Harbinger Of Debt Ceiling Negotiation Outcome?
Two down. 48 to go until Meredith Whitney is proven correct beyond a reasonable doubt. After New Jersey was forced to reach out to JP Morgan for an emergency bridge loan a few days ago, it is Minnesota’s turn. From ABC: “Minnesota’s government has shut down, ahead of the holiday weekend, for the second time in six years after state leaders failed to find common ground on resolving a $5 billion budget deficit. Thousands of state workers will be laid off, state parks will be shuttered, the issuance of fishing licenses will be halted and the Minneapolis zoo will be closed. Road projects will also grind to a standstill just as people hit the road for the holiday. A midnight deadline passed without an agreement as talks between Democratic Gov. Mark Dayton and top Republicans unraveled over Dayton’s proposal to impose taxes on the state’s top earners, a move on which top GOP officials have refused to budge…Some programs that will continue unabated include critical services including the State Patrol, prisons, disaster response and federally funded health, welfare and food stamp programs.” Granted this is not a first: “Only four other states — Michigan, New Jersey, Pennsylvania and Tennessee — have had shutdowns in the past decade, some lasting mere hours. Minnesota’s government partially shut down under then-Gov. Tim Pawlenty in 2005 over a budget fallout.” However, if NJ is any indication, as predicted, expect ever more states to bypass the municipal route of funding, and appeal directly to commercial banks. Which will generously provide as much Fed-generated one and zeros…in exchange for 80% LTV collateral of course.
A midnight deadline passed without an agreement as talks between Democratic Gov. Mark Dayton and top Republicans unraveled over Dayton’s proposal to impose taxes on the state’s top earners, a move on which top GOP officials have refused to budge.
“It’s significant that this shutdown will begin on the Fourth of July weekend,” Dayton said in a news conference late Thursday night. “On that date we celebrate our independence. It also reminds us there are causes and struggles worth fighting for.”
Dayton said he has been clear with state GOP leaders for several months that that he is unwilling to agree on anything other than a total budget approach.
GOP leaders said the two sides were closer than Dayton is leading on, and have criticized his refusal to call a special session to pass a “lights on” budget bill, which would maintain safety funding at current levels to keep government running. GOP leaders have said that the bill is a two-page document that is ready to be passed, according to Minneapolis- St. Paul ABC News affiliate KSTP.
“I think the governor’s insistence that we pass a full budget is not going to be of much comfort to Minnesotans who are going to see delays on the highways because construction projects stop,” Senate Majority Leader Amy Koch said. “It’s not going to comfort people who can’t use our state parks, or who can’t get a driver’s license.”
If the Minnesota impasse is any indication of the future of the debt ceiling debate, in which republican don’t actually fold like a cheap suit, get your VIX, MOVE and popcorn calls ready in late July.