As the cross-country municipal budget crisis grows more dire with each passing month, the solutions to generating revenue are growing even more drastic. Fact: One New York politician recently proposed legalizing the banned sport of steel cage Ultimate Fighting. The logic being: Everyday people are gonna pay good money to see the snot get knocked out of others while they themselves suffer daily financial beat-downs.
In a nutshell: The world's leading economy has become the United STRAITS of America. Recent data reveals that collectively, the 50 states of the union have budget deficits of more than $130 billion and unfunded pension and healthcare plans of more than $1 t-t-trillion. Not to mention soaring municipal bond yields AND a record $4 billion outflow from municipal bond funds (as of January 19).
In the words of now famous Wall Street analyst Meredith Whitney, the state-to-state shortfalls are "certainly the largest threat to the US economy." (CNBC) Last September, Whitney -- known as "The Prophet of Doom" -- released a 600-page paper with this bold prediction: "States are poised to be the next credit crisis."
Some Capital Hill policymakers even suggested passing a bill that would enable states to declare Chapter Nine bankruptcy. In a January 21 New York Times article, one pro-state bankruptcy official expressed his concerns:
"All of a sudden there's a whole new risk factor. Beyond short-term budget gaps, states have deep structural problems like insolvent pension funds that are diverting money from essential public services like education and healthcare."
The problem of state indebtedness is a grave one indeed -- but at least for Elliott Wave International's readers, there's nothing "sudden" or "new" about it. Only AFTER the tide had turned and muni-giants like California and New York began to suffer Greek-like falls from financial grace did the crisis get the national spotlight. What about BEFORE?
In his 2002 New York Times business bestseller book "Conquer The Crash," EWI President Bob Prechter provided this compelling outline of the woes to then-come, now-seen in Muniland via these riveting insights:
"Today, millions of individuals and institutions own tax-exempt municipal bonds. While there are assuredly many exceptions, this class of bonds is the riskiest among popular government issues. In the United States, default could happen to municipal bonds at any time after times get difficult...The tax break may be a bonus in good times, but like so many seemingly great deals, this one will ultimately trap investors into a risky position."
AND --
"Don't expect government services to remain at their current level. The ocean of money required to run the union-bloated, administration-stultified public school systems will be unavailable in a [downturn]. School districts will have to adopt cost-cutting measures, and most of them will result in even worse services... The tax receipts that pay for roads, police, and jails, fire departments, trash pickup... and so on will fall to such low levels that services will be restricted."