Posts Tagged ‘national debt’
Gone Are the Days When Municipal Bonds Were Safe
By Michael Lombardi, MBA for Profit Confidential
Municipal bond investors beware!
On June 14, it was announced that Detroit will not make a $39.7-million payment on unsecured municipal bonds worth $2.0 billion. This makes Detroit the most populated city to default on its debt, after Cleveland, since 1978.
The Emergency Manager, Kevyn Orr, who was sent by Michigan state to look over Detroit’s budget deficit told reporters in a news conference on June 14, “We have to strike a balance between the legacy obligation to our creditors, our employees and our retirees, and the duty we have as a city to 700,000 residents to give them lights, police, fire, emergency management, clean streets.” (Source: “‘We’re Tapped Out’: Detroit Emergency Manager Proposes Plan to Creditors,” CBS Detroit web site, June 14, 2013.)
As horrific as this news may be to the mainstream media and the politicians who say the U.S. economy is getting better, it shouldn’t be a surprise to Profit Confidential readers in any way. I have been harping on about the growing problem of cities and municipalities in financial trouble in the U.S. economy, and their effects on the municipal bond market, for some time now.
The “Motor City” defaulting on its debt obligation is certainly a big issue, but it isn’t the only place where municipal bond holders are facing losses. Cities like Stockton, California have already filed for bankruptcy due to their inability to control their budget deficits.
Jefferson County, Alabama, which previously filed for bankruptcy, recently came to a decision with its municipal bond holders. It has decided that the largest creditors will only receive 60% of what the city owed.
Gone are … Read More
Failed Projections or Just Another Government Lie? You Judge
By Michael Lombardi, MBA for Profit Confidential
Boy, were they wrong!
Not so long ago, the Congressional Budget Office (CBO) said it expected the U.S. government to register a budget deficit in the current fiscal year of $642 billion.
But hold on a minute…
The budget deficit so far (as of May 31, 2013) has already hit $626.3 billion, and we still have four more months to go in the government’s current fiscal year!
Since the beginning of the U.S. government’s current fiscal year 2013, which began in October of last year, the government has posted a budget deficit in six out of the past eight months.
The Department of the Treasury just reported the U.S. government registered a budget deficit of $139 billion for the month of May. The federal government took in $197 billion and paid out $336 billion for the month. (Source: Department of the Treasury Financial Management Service, June 12, 2013.)
Comparing it to last year, May 2013’s budget deficit was 11% higher than that of May 2012.
The government has been raking in a budget deficit of over one trillion dollars in each of the last four years; and with four months still left in this fiscal year, it wouldn’t surprise me to see us register a fifth consecutive year of trillion-dollar-plus deficits, despite being repeatedly told by politicians that our budget deficit this year would come in under $800 billion.
This is troubling news; the more budget deficits the U.S. government registers, the more the national debt will increase, and the more the government will need to borrow to pay for expenses. It’s that simple.
Currently, our national debt stands at … Read More
Don’t Read This if You Thought the Economy Was Improving
By Michael Lombardi, MBA for Profit Confidential
The Bureau of Labor Statistics reported this morning that the U.S. unemployment rate is now 7.6% percent, with 175,000 new jobs created in May. At the same time, the Bureau revised its April numbers down, saying 149,000 jobs were created in April, and not the initial 165,000 it reported.
The unemployment situation in the U.S. in May was essentially the same as in April. (I wonder how the Federal Reserve looks at this. Does it say, “Wow, imagine what would have happened to the jobs market in May if you didn’t create $85.0 billion in new money during the month”?)
My readers know I don’t care much for the “official” unemployment numbers we get from the government statistics office. I believe the official rate doesn’t show the real picture, because it does not include people who have given up looking for work in the jobs market and people who want full-time jobs but can only find part-time jobs.
When we take into consideration these two important figures that the official numbers leave out, the underemployment rate, as it is referred to, was 13.8% in May—it’s been hovering around 14% for years now.
A startling 7.9 million Americans are working part-time, because they can’t find full-time work in today’s jobs market.
In total, there are still some 12 million people in the U.S. jobs market looking for work. What’s most troubling is that 37.3% of them have been unemployed for more than six months! The longer they stay out of the jobs market, the more difficulties these people will face in finding jobs as their skills become obsolete.
Looking closer at … Read More
A Mirage Called the Stock Market
By Michael Lombardi, MBA for Profit Confidential
While an economic slowdown is looming over the global economy, no one seems to care, as stock markets continue to reach new record-highs—giving investors false hopes of economic growth. But how long can this mirage actually last?
The economic slowdown in the global economy I’m talking about is a worldwide pullback in growth. Take India as the first example. According to India’s Central Statistics Office, the Indian economy is growing at five percent—its slowest pace in a decade! The director general of the Confederation of Indian Industry was quoted late last week as saying, “With no visible pick-up in any key levers of the economy, the situation remains grim.” (Source: Mallet, V., “India records slowest growth in a decade,” Financial Times, May 31, 2013.)
China, the second-biggest economic hub in the global economy, is facing headwinds, as its economy is growing at its slowest pace since 2009. Japan has undergone the largest per-capita quantitative easing program in history (its debt-to-gross domestic product [GDP] is running above 200%), and that country is back in a recession.
The unemployment rate in the eurozone was reported last week at 12.2% for April. It was 12.1% in March. The unemployment rate in Spain stood at 26.8 % and in Portugal, it stood at 17.8%. (Source: Eurostat web site, May 31, 2013.)
And industrial metal prices, which are supposed to be a leading indicator, are all heading downward.
Take a look at the chart below of the Dow Jones-UBS Industrial Metals Index. This index provides an overall picture of the performance of industrial metals.
Chart courtesy of www.StockCharts.com
Since the beginning of the … Read More
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