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Bernanke/Senate to States: Buzz Off! - Or Not?
Our boy Ben B met with senate leaders last week to discuss the sorry
state of the States. It looks like all talk and no action, so far. I
wanted to write about the non-event to have a record. When Ben reverses
course later this year I will be able to point to this weekend’s
comments and say, “I told you so”.
The setting was a hearing of the powerful Senate Budget Committee. The
Chairman is Kent Conrad (D-ND). Last I heard ND has no muni problems,
but it was pretty clear that this group of Senators were well informed
on the issues that cities, towns, counties and states are facing.
Senator Conrad: (Link to Bond Buyer story)
We’re talking about a significant problem here. We need to be prepared with a plan in case we are approached by one or more states.”
A “plan? What plan? From Senator Joe Manchin (D-WV)
“20 to 30 states could be in serious problems”
Jeepers! 30 States Joe? Senator Manchin sounds like he is more bearish
than Meredith Whitney. John Cornyn (R-Tex) added to the sense of
concern. From a spokesman:
“Senator Cornyn is exploring ways to address the state financial crisis, including amendments to the bankruptcy laws”
BK? A State? What is that about? Is this the "plan"? A state bankruptcy
has not happened in more than 100 years. Chairman Conrad summed it up:
His
panel needs to come up with a plan to help states that approach Congress
seeking assistance because of serious financial troubles.
We all know that munis across the country are in the crapper. That said,
I was surprised at some of the hard language. Normally these folks
don’t talk like this. I am thinking, “What do these guys know that I don’t?” “Why is there a need to revise the bankruptcy code to facilitate Municipal default?”
The answer to those questions can be found in the words from the
committee and comments from Bernanke. D.C. Inc is not throwing any
life-lines to the sick states. Senator Conrad:
“I don’t think the House or the Senate are going to be very interested in bailouts to states.”
“Not interested in a bailout?” The understatement of the new year
(so far). But the real interesting stuff came from Bernanke. He says he
is not going to be there if the States need some of that fast cash he
is providing to the federal government with QE.
“We have no expectation of intention to get involved in state and local finance”
That’s nice to hear. But my concern is that Bernanke seems to be in
denial as to the extent of the problems with munis. In his world if the
S%P is higher then all must be well in the economy. When asked if there
could be a problem in muni land he responded:
“We don’t at this point see anything of that magnitude happening.”
“State and local governments have the tools to deal with their fiscal problems and debt”
“The municipal bond market currently seems to be functioning reasonably well”
Huh? Not a big deal? States can handle it, no problem? Muni
market doing just fine? (what the hell was December?) Ben is not
concerned about this as he is flooding the markets with liquidity. He
thinks liquidity is the solution to solvency:
“The bottom line is that there is a lot of liquidity in the muni bond market and it seems to be doing okay.”
Bernanke went on to confirm that EVEN IF NECESSARY the Fed could not intervene. Apparently it is against the rules:
“I don’t think the Federal Reserve has the authority and I don’t think it would be appropriate for us to do that”
The message I get is that (a) Ben is in denial and his hands are tied and (b) Congress is not going to lift a finger to help out the states. An interesting state of affairs.
Wait a minute. That is not how things are done in the USA. When there is a need, we bail! Right?
We have already spent a few Trill doing that. I mean, do "they" think
that saving Citi a few years ago is more important than saving
California or NY in 2011? Let’s put it this way, if Cali goes down it
will bring a dozen states with it. This would be a situation far worse
than anything that we saw in 08.
When push comes to shove (it will) Cali/NY are going to prove once again
that they send more tax dollars to D.C. than they get back. That fact is going to be impossible for Washington overcome. The
bailouts that the Fed doesn’t see as necessary and congress doesn’t
want to touch will happen. It has to. The reality is that Ben does see the problem and congress knows that it will HAVE to get involved. They admitted as much with this exchange:
Senator Conrad
“Maybe there are ways to help with creative financing.”
Chairman Bernanke
“We do have the authority to buy very short-term municipal debt”
Tell me again why I should be rushing out to buy some long-term muni bonds?
"Common" Weasel
"Marketing" Weasel
Albino "Killer" Weasel
»
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Here's a way the states can temporarily stave off bankruptcy and make the federal government pay attention to them.
Each state should empower its revenue department to be the official conduit for all Federal Withholding Tax payments within the state. In order to ensure that Federal payroll taxes are properly accounted for, each state should become the sole agent for the feds within their jurisdiction.
Naturally, as the agent of the feds, each state must, in due time, forward said taxes to the IRS. Maybe quarterly, maybe annually.
They could then play with said billions for as much as a year before sending them along.
Since this is about the only REAL money the federal government sees, having the revenue stream intercepted and put in a safe place at the state level would certainly change the game plan in the statist stadium.
I can hear the screams from DC already!
State sovereignty, Bitchez!!!
nice call sandy dr assuming all parties operate with your common sense wherein lies the problem and begets the unsolvent/insolvent or whatever........you see.
Hey, a girl can dream, can't she?
if i need medical help, or mental can i call you, sandy?.......i love hope. you are a sweetheart.
Noda goes atomic.........Japan to buy 20% of EZ bonds.
What do you think, Bruce?
I think, not that it matters what 1iota what i Think, that Noda along with the statement that came out of PbOc last night is take your chances being short this market.
ps........if you only need 1 trade to make the year and it is USD/JPY hitting 0.8600 then CAD/JPY looks decadent if it's a round on the house, courtesy of central bankers.
Was that the freak in the EURCHF this evening?
hi Orly,.........looking at that EUR/JPY at 1o7.50 right now. ........what would DorothY and ToTo think?
reap a whirlwind, maybe?
i am still in love with you so stop talking to me, all right.
Awww. Thanks. "")
So does anyone know what happened in the EURCHF tonight?
_______
Right now, I am suspicious of all the yen crosses, which I mention in this thread, #861812 , replete with numbers and gibberish. I think the yen crosses could be breaking down here as their Weekly and Daily charts have them hanging out in space like a Wile E. Coyote cartoon.
After the jobs report last week, the USDJPY pair seemed to revert back to a "risk-on" trade (insinuating QE III is coming right up...). With the stock markets looking to make a correction, possibly a pretty good one, it could be "risk-off" in a hurry. All the JPY crosses would probably tumble at that point.
So, in answer to your query: sell it...coz we're not in Kansas any more.
:D
Noda happened to EUR/CHF........put a floor under it and the Euro........personal opinion and prepared to for the blowback for all moFOs if offside on this call, but PbOC and Noda are frontrunners for open-the-flood-gates QE 3 or whatever it takes to prop price.
Sort of 'if all else fails' then trot out more credibility ......Noda magically appears to make a debt bid on 20% of EZ bonds
The PBOC was out last night calling for diversification into equties and commodities.
Not shorting signals from the 3 in the league of the FED, PBOC and BOJ.
If it breaks lower then sell.
Right now the signals coming out of Japn, China and Germany look a lot more like a defense than a route. If the Euro collapses what purpose does that serve and at what price?
If a coordianted central bank approach to dealing with debt problems gains traction it buys time at the least.
If it takes hold as in the FED's QE 1 and 2 then price discovery takes on a new meaning.
Not inclined to short EUR/JPY at this price............may look to get long. Also looking to get long CAD/JPY
Best of luck with your trades. Watch for the whipsaws!
Aussi
Pending upside move in EURAUD could bring a few pips.
Now playing...
Sounds familiar, and love the one you're with.
You have a gift, bk
'Last I heard ND has no muni problems'
ND=North Dakota=Only non-Fed State out of 50 and model for plan B post-Fed collapse
http://www.webofdebt.com/articles/pottersville.php
I guess they figured it all out the last time round.
For some reason, I've always pictured North Dakota as more of a model A kind of place.
What is the difference between a Weasel & a Stoat? One is Weasely recognisable & the other is Stoatly different ...... Boom Boom.
Weasel, stoat what's in a name? My favorite? Polecat
And you like Zappa?
One cool dude you are, William.
The states have ridden the 3 decades old fed-sponsored credit binge to their own extreme levels of program and pension overextension; Ben's denial of aid will be reversed, but he and his spinning-and-lying agency want the governors, mayors and city councils to take as much blame as possible for the impending cutbacks, after which, at some crisis point he will reverse his position, purchasing pension plans and munis, but at a reduced cost.
Plus, if he indicated support now, wouldn't local leaders abandon austerity proposals, in droves.
I thought this was the most interesting part of Bennies appearance as well, certainly the part which stuck in my mind. Huge disconnect between Benny "Oh, that will never happen, hasn't happened in years etc." and Conrad and Manchin who were, for that setting, quite unusually insistent about their concern. I thought it was particularly outrageous when one the critters from Oregon (or was it both of them) tried to derail the conversation by shucking and jiving about football. They wasted a good deal of time considering the hearing was on a clock. Upshot- Benny lying again.....he also got that old vocal quiver going again when the convo turned to The fed audit question. All in all a fascinating watch.
A number of southern states borrowed heavily after the civil war (primarily from Northerners) and then after a decent interval simply repudiated their bond indebtedness and there was nothing, under federal or state law that the creditors could do about it. This talk about a bankruptcy for states is an attempt by wealthy muni bond holders to get a federal judge involved in what is otherwise a state matter. Although I have not looked this up, the constitutionality of forcing a state, or one of its political subdivisions, to submit to a Federal Court attempting to protect the state's creditors seems a bit dicey.
I don't think the average muni bond holder has any idea of the precedents or the risks that they face.
In some cases, the states would be better off repudiating their debt. Thus freed of payment of interest and principal on that debt, their budgets would be much easier to balance going forward, even though they might be denied access to the credit markets.
Why is gold not up 10% based on this very discussion alone?
I can literally hear the buzzing of the printing presses all day and night!
You can literally smell the waning scent of a diluted dollar.
Defaults are on the table. Statewide bankruptcies are inevitable. There is no money and even the money they're printing or clicking to buy the debt is not enough anymore.
When everyone is talking about it and has it figured out, it is too late!
Gold moonshoot this week? This month?
The Fed will not help States, as there are no owners/members that are US States who are partial owners/shareholders of the Federal Reserve that benefit from this type of action. The POMO and other QE benefits members (JP Morgan, etc) who do own the Fed. States are SOL unless Congress forces the Fed to give States partial ownership of the Fed.
"When push comes to shove (it will) Cali/NY are going to prove once again that they send more tax dollars to D.C. than they get back."
My reading of the 'who pays more than they get back" charts isn't quite that clear.
I've always thought that in an environment where the Feds take in about 2 trillion and spend 4 trillion that it would be almost a mathamatical impossibility for any state to get less tha 100% of what the send in.
What I believe those figures show is not that let's say California pays 100 billion in taxes to the Feds and only receives 80 billion in return for projects, etc. The figures on who gets what and is short changed or advantaged, are based on a calculation of what percentage of the deficit spending benefits each state on a pro rated basis.
So California may send in 100 billion, and "only" receive 105 billion in return, but since the defecit went by 20%, and they are theoretically on the hook with the rest of us to repay it, in this example, another state got 15% more than they did.
If Bernanke sees his shadow, does that mean we get 6 more months of QE?
I'm curious to see how a State bankruptcy would work. It won't be as simple as what the airlines did to minimize their employee benefits costs. Surely many states have more debt and future obligations than is reasonable but CA and NY have huge personal wealth. I believe the tax increases have just begun and there is a lot of room to raise them which will lead to even more business flight to lower tax states.
I don't believe a single syllable from the mouths of any of these people. Lying is their profession! They are talking like this solely to reassure the markets, but their own history is one of lies and deceit.
Remember when the Bernank claimed that there was no bubble in the residential real estate market? It's beyond me why ANYONE gives them one ounce of credibility!
Their legacy in history will ultimately be one of devastation and destruction!
They will not bail out the states until we have blood on the streets (which may literally happen). Then the cowards will fold like cheap cameras.
Illinois is probably the worst shape- they have something like $5 bln owed to vendors NOW. (Not exactly sure of the amount, but it's a bunch) We just went thru Ill in Dec. Was told at a filling station, a lot the stations won't put gas in State Patrol cars, because the cards are no good, and they are not getting paid.
As I mentioned above, it doesn't seem that states or cities can solve their problems for long simply by selling more munis. Their ability to get by on debt year after year seems much more limited than the feds.
Anyone else have thoughts on this? Am I right?
You're basically right. In order to sell those munis the cities and states would have to offer them with a high interest rate and they simply cannot do that. They can't afford the interest on their present obligations. That's why many cities are looking to sell municipal assets, such as parking garages, parking meters, etc.
My city, Harrisburg PA is still kicking the idea around of selling their parking garages to bring in some fast cash. Expect Harrisburg to declare bankruptcy before spring. That Act 47 crap ain't gonna work because it takes too long. Harrisburg does not have the luxury of time right now. They are having problems just making payroll every pay period.
Of course. Look at what happened to the municipal bond market after the Build America Bond program expired.
WB7-
Always wondered where Zappa got the idea for "Weasels Ripped My Flesh", thanks!
No poster child for the Progressive Entitlement Society will be allowed to fail until O is re-elected. Pure pragnmatic politics. If the Libs think that conservative groups are a danger, wait until the marxist union thugs are threatened with benefit erosion or dissolution.
The political consequences of continuing to bail out the banks while allowing the states to go bankrupt would be severe. Not to suggest that these insulated coutiers realize that but those are the facts. So as usual they will make a mistake (let a state go to the brink) and then react when they determine they have a problem.
"Very short term" means six months or less. The Fed could buy longer term obligations if they were guaranteed by Uncle Sam. You'd think this would add to the debt ceiling, but the precedent established by Treasury's Dec 24, 2009 announcement with respect to the GSE's suggests otherwise. The most likely scenario from my point of view is, by H2 2011, the combination of 6 mos. or less purchases of muni/state debt by the Fed combined with a "temporary" lending facility for longer maturities. Depending on the state of general price inflation at that point (we probably differ on this point), Fed may sterilize with term deposits (e.g., Fed Bills).
See Section 14 of the FRA (emph. mine):
Purchase and Sale of Obligations of United States, States, Counties, etc., and of Foreign Governments
(b)
So, all Congress has to do is create an "agency" to acquire municipal and state debt and the Fed can load up. Problem solved.
Why even bother to create another agency? Freddie could start bundling 30 yr mortgages with like-maturity Kalamazoo sewage bonds. Bespoke aggregation services for FRBNY commence next week:
http://english.economicpolicyjournal.com/2011/01/further-signs-fed-cannot-extricate.html
It's all how you hide the banana, not if the banana is real or not. Con...fidence is the only thing that matters at this point. And the less confident people become, irnoically the more desperate they will become to believe the bullshit......until everyone rushes for the exit en mass.
There's only so much room in the life raft and the elite have first dibs.
So, if I understand you, CD, people will cling to fanciful beliefs simply because their very livelihood is invested in the fantasy? Seems a barbarous relic.
Yes, barbarous relic all right. :>)
At the end of the day you can't eat that fantasy. One could say that Gold and Silver are also fantasies. But they are fantasies that have lasted much much longer than any fiat fantasy.
In this dimension of the Outer Limits we measure reality by it's staying power. Gold and Silver have remained....er...."real" longer. Period. :>)
Quotation of what appears in the upper right of every ZH page would now be superfluous. My question is: can we know anything a priori?
No
But rest assured you and I would receive furious argument from those whose very being is dependent upon "yes" as the answer. For many, letting go before stepping is too frightening to ever contemplate never mind actually doing.
I always loved this definition of "a priori" found at this link. Any time I see someone use the term, I just have to show them the link. :>)
This man....er....Klingon would like a word with us.
The muni market problems are well contained. I feel so much better, now.
1:43:00 Ben say's he can lend but limited,,,HA!
http://www.c-spanvideo.org/program/USEconomicOutlook16
Ben never saw the housing collapse. Great track record.
He will buy munis...just wait and buy that tail
''do "they" think that saving Citi a few years ago is more important than saving California or NY in 2011?''
And why the heck not? By saving Citi, BofA, GS the Fed saved "the system", a.k.a. the wealth of Rothchilds, Morgans, Warburgs, Paulsons, Blankfeins and other innumerable families, clans and individuals. Not to mention that the Fed needs to have the network of PDs to operate.... and the Treasury needs a network of healthy banks to provide good-paying jobs for treasury technocrats when it's time for them to jump to the "private sector."
And what's the worst that can happen if Cali and NY file? A few million ex-state employee retirees will get their (often) obscene 6-figure pensions cut. A few million non-violent inmates will be let go. A few underperforming schoold will be closed. State Universities subsidies will be cut. Broadly speaking, Cali and NY are not "systemically important" as Citi and BofA
They can bail out foreign countries, but not a U S state?.
This will be fun as hell, J6P, will not get this at all.
Bailouts for likely Fed shareholders, but States likely do not hold shares. Interesting thought experiment to reverse engineer a long term Fed strategy where the States aren't bailed out. I have tended to think the States will get them when the time comes, but what would the game plan be if this truly won't happen. Who get's hurt and who doesn't? Eyes on where Pimco goes on or off margin over the next few months.
But that would push the unemployment rate through the roof. As long as those inmates are behind bars, they aren't counted as part of the work force. Once they re-enter society, they are now (supposedly) looking for work, thus they are counted as unemployed. And they are ready and able to work, thus they are part of the workforce.
Whoops. I may have give the Ponzi an idea. Hard as it is to imagine, in a twist of the above, putting the currently unemployed behind bars just might help the BLS with their numbers. Save the national employment rate and lock up the unemployed. :>)