Howestreet.com - the source for market opinions

ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

June 10, 2017 | Illinois In Deep Financial Trouble

Martin Armstrong

Martin Arthur Armstrong is the former chairman of Princeton Economics International Ltd. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

Illinois Comptroller Susana Mendoza was ordered to make a “substantial” dent in a $2 billion backlog of bills owed to Medicaid providers. The courts ruled that according to the State Constitution, it cannot reduce the pension payments to state employees. What is happening in Illinois is indicative of how governments are imploding and why I am warning get out of all State and Muni-debt before it is too late. Since State and local governments cannot “print” (create) money, they are forced to borrow and raise taxes. Consequently, they have hit the ceiling in tax resistance. What is happening is people are gradually migrating because there is absolutely no hope for states like Illinois. The only way out will have to be bankruptcy and a default on all the pension promises.

A federal judge has now intervened ordering the Comptroller to now prioritize who it pays. This is turning into the clash of titans – the epic battle between medical expenses that constantly rise regardless of the business cycle and state employees demanding pensions. Caught in the middle are the average middle class American who is being exploited from both sides. The judge now ordered the state to pay up towards Medicaid to keep doctors and hospitals from cutting off care for the low-income families that rely on the program.

 

I have often pointed out the fate of the city of Mainz. They had their technological boom with the invention of the printing press there. The politicians couldn’t wait to spend tax money assuming the business cycle would never end. So they spend the money before the taxes were due and borrowed against future tax revenues. The debt quickly became a Ponzi scheme issuing new debt to pay off the old as we are doing today. The interest kept rising so they just raised taxes. The rich began to leave and the city was quickly left with the people who didn’t really pay taxes. The bubble burst when they could not sell the next new issue of debt to pay off the last one. The city defaulted. The Pope excommunicated the politicians. And eventually the city was simply sacked and burned to the ground.

Politicians are the scourge of human society. They are the great destroyers of civilization and the instruments of war. People champion gold standards as if this would solve anything. The common fault is not what we call money, it is always, and without exception, those who we put in charge of it.

Meanwhile, Moody’s and S&P have both downgraded the general obligation debt of the state of Illinois as of June 1, on a combination of a state government budget impasse and a seemingly unstoppable unfunded pension obligation that has now ballooned into at least a $130 billion shortfall. You better get out of the State before it is too late. Property values will decline further because of the tax burden.

Welcome to the Sovereign Debt Crisis. This one is going to be a-realdoozy.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.

June 10th, 2017

Posted In: Armstrong Economics

One Comment

  • Avatar Larry Wilson says:

    The biggest problem in Illinois is simple to explain. It’s called misappropriation of funds….it starts right in the House of Representatives and the Senate where they steal from one place and use it where it was never intended to be used. Pension funds robbed and lottery money stolen…..where does in go? It’s my bet to the salaries of people like Michael Madigan for starts. Is he still getting paid? You bet he is! Let’s look at the fine High Speed rail from Chicago. That was needed so badly we all know. Who was paid to build that? And don’t forget the parties at each station along it…how much did that alone cost us. My suggestion is to go to the Capitol and start arresting them all and jail them. They have been stealing all this money and not using it where it belongs. That is out and out theft! No other way to describe it. Call Michael Madigan and ask him if he’s being paid! Arrest the criminals in Springfield and now!

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site

*
*

This site uses Akismet to reduce spam. Learn how your comment data is processed.