The New York Times published an article last Saturday on Illinois' finances that is a must read for everyone. Because sadly, it provides a glimpse into our economic future.
Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole
For the last few years, California stood more or less unchallenged as a symbol of the fiscal collapse of states during the recession. Now Illinois has shouldered to the fore, as its dysfunctional political class refuses to pay the state’s bills and refuses to take the painful steps — cuts and tax increases — to close a deficit of at least $12 billion, equal to nearly half the state’s budget.
Then there is the spectacularly mismanaged pension system, which is at least 50 percent underfunded and, analysts warn, could push Illinois into insolvency if the economy fails to pick up.
States cannot go bankrupt, technically, but signs of fiscal crackup are easy to see. Legislators left the capital this month without deciding how to pay 26 percent of the state budget. The governor proposes to borrow $3.5 billion to cover a year’s worth of pension payments, a step that would cost about $1 billion in interest. And every major rating agency has downgraded the state; Illinois now pays millions of dollars more to insure its debt than any other state in the nation.
“Their pension is the most underfunded in the nation,” said Karen S. Krop, a senior director at Fitch Ratings. “They have not made significant cuts or raised revenues. There’s no state out there like this. They can’t grow their way out of this.”
As the recession has swept over states and cities, it has laid bare economic weakness and shoddy fiscal practices. Only an infusion of federal stimulus money allowed many states to avert deep layoffs last year.
While a state can't technically go bankrupt, it can stop paying its bills (default), and Illinois has stopped paying it's bills. They aren't cutting the salaries and pensions of government workers to avoid collapse either, but have chosen instead to stop paying for services that provide for societies most vulnerable people.
And as colleges are forced to cut back, kids graduating high school are going to find it harder to get into college in the near future too.
From suburban Elgin to Chicago to Rockford to Peoria, school districts have fired thousands of teachers, curtailed kindergarten and electives, drained pools and cut after-school clubs. Drug, family and mental health counseling centers have slashed their work forces and borrowed money to stave off insolvency.
In Beardstown, a small city deep in the western marshes, Ann Johnson plans to shut her century-old pharmacy. Because of late state payments, she could not afford to keep a 10-day supply of drugs. In Chicago, a funeral home owner wonders whether he can afford to bury the impoverished, as the state has fallen six months behind on its charity payments, $1,103 a funeral.
In Peoria — where the city faced a $14.5 million gap this year and could face an additional $10 million budget hole next year — Virginia Holwell, a trainer of child welfare caseworkers, lost her job when the state cut payments to her agency.
Public colleges and universities occupy a fiscal sickbed all their own. This year they muddled through without $668 million expected from the state; the University of Illinois has yet to receive 45 percent of its state appropriation. Legislators made no pretense of promising to pay this bill soon. Instead they authorized colleges to borrow against the expected state payments.
The city of Rockford plans to close fire stations and lay off firefighters, and in Decatur, 180 impoverished seniors have lost their delivered meals.
The Community Counseling Centers of Chicago is another of those workaday groups that are like the stitches on a baseball, holding together poor and working-class neighborhoods ... On any given Monday morning, the agency’s chief administrative officer, John J. Troy, 61, has no idea how he is going to keep its doors open until Friday. He said the state had not come through with an expected $2.2 million, which is about six months of arrears.
It's not just Illinois who's facing this crisis either. There are a lot more states right behind them, like California, New York, Michigan, Pennsylvania, Ohio, and Louisiana just to name a few. Like dominoes, what is happening in Illinois will replicate itself across the nation, pushing unemployment skyward and cutting social services further ... leaving a wake of economic destruction in its path.
This situation should put to rest people's faith in government "compassion," "guarantees," and paper money too. But unfortunately, it probably won't. Meaning America is on a path towards social unrest, like we've already witnessed in Greece and Spain.
Moody's fears social unrest as AAA states implement austerity plans
The US rating agency said the US, the UK, Germany, France, and Spain are walking a tightrope as they try to bring public finances under control without nipping recovery in the bud. It warned of "substantial execution risk" in withdrawal of stimulus.
"Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion," said Pierre Cailleteau, the chief author.
Yes, it can happen here in the good old U.S. of A., so don't kid yourself about the severity of the economic crisis we face. Think about how aggressive SEIU and the rest of the unions have already become too, before choosing to brush these warnings aside.
15,000 Illinois Protesters Chant "Raise My Taxes"; Unions Getting More Aggressive and Obnoxious; Record Turnout in N.J. Tells Unions to Go to Hell
In Illinois, union protesters staged a huge rally in Springfield, demanding higher taxes for their self-serving agenda. Please consider Thousands of protesters at Illinois Capitol to press for tax increase.
Thousands of protesters bused down by labor unions and social service advocates rallied at the Capitol today in an attempt to pressure state lawmakers into raising the income tax to avoid more budget cuts.
Save our Schools is a farce. Save our Salaries is what the protest is all about.
The union does not give a damn about the kids.
Unions Getting More Aggressive and Obnoxious
What do we want?
More money.
What do we want?
We want more money.
When do we want it?
Now?
When do we want it?
Now?
With everyone in the private sector losing their jobs, having their pay cut, and watching their retirement savings disappear, they're growing more impatient with these vulgar union tactics too.
Huge Anti-Union Backlash Starting
If unions think these outrageous tactics are going to bring them sympathy from the public, they are sadly mistaken.
Please consider NJ voters in 'no' mood for school tax hikes.
It's good to see record turnout in New Jersey. It's even better that the public is finally sick of being taxed to death for the benefit of ungracious, overpaid, public union members.
The message from New Jersey voters to the public unions is "Go To Hell". It is a fitting and well deserved message. Politicians in the rest of the country better be listening.
I suppose one could say that I've been posting a lot of negative, doom and gloom stuff about the economy lately, but that's the wrong way to look at it. I'm just trying to inform and prepare you for the difficult road ahead ... there is no free lunch.
- Betting on that “Jobless” Recovery?
- Bankrupt Federal Government
- Preparing for the Post-Dollar Era
- Food Shortage Coming?
- Prepare for ‘Monster’ Money-Printing by the Federal Reserve
- Jobless Claims and the New Great Depression
- Rand Paul ‘A Day Of Reckoning’ (VIDEO)
When you hear the government and mainstream media use the word "recovery," remember that recovery is simply newspeak for depression. So as you hear them starting to talk about a "double-dip recession" ... it's time to prepare for an economic nightmare.
