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Thread: Why America's nightmare has barely begun

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    Elite Member Fluffy's Avatar
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    Exclamation Why America's nightmare has barely begun

    Why America's nightmare has barely begun

    By Senior Writer Eoin Gleeson Oct 17, 2008

    On Monday the Dow Jones posted its biggest one-day gain in history. So is America's nightmare over?

    Not by a long shot. But what could be worse than the threat of financial meltdown? "How about a total depletion of local government finances that pay for the things that make up the very fabric of American society?" asks James Doran in The Observer.

    In short, US states are running out of cash. Across the country, state governors are facing the possibility of not being able to pay their policemen, teachers and firemen this month. That's because, when the world's credit markets went into deep freeze, local governments had their lifeline – the municipal bond market – cut. And this source of funding is critical to the daily running of government. Since tax revenues vary from month to month, states raise cash to build bridges or pay their bills by issuing municipal bonds.

    The trouble is that investors are just too scared to buy this type of paper at the moment. Take last month – some $6bn in new municipal debt issuance was expected, but only $100m came to market, with New York, Massachusetts and Missouri all ending up short of capital in recent weeks. So much so, in fact, that two weeks ago Californian Governor Arnold Schwarzenegger was forced to write to Hank Paulson warning he'd need a $7bn emergency loan so that his state could make ends meet.

    So, unless Washington weighs in with a huge bailout for the municipal bond market, public services in America are set to be stripped to the bone.
    And that means that projects to build new bridges, repair roads and lay water pipelines are likely to be cancelled as states, fearful of civil unrest, divert precious funds to pay police and firemen. As such, California, for example, may find it difficult to resist the temptation to dip into the $20bn that it has set aside for rebuilding its threadbare infrastructure. It seems that the urgent task of replacing America's rusted water mains and faltering bridges may well have to wait a little longer.

    All this work can't be put off for too much longer. America's 700,000-mile network of water pipes is more than 100 years old and is in a state of utter disrepair. In 2006, rusted pipes led to more than 3.5 million people in the US falling ill from Escherichia coli poisoning and from toxins released from over 40,000 sewage spills, according to the US Environmental Protection Agency. And of the 756 steel deck bridges spanning US waterways, at least 80 of them are in the same state of disrepair as the bridge that fell into the Minnesota river last year, claiming the lives of 13 school children.

    That's why the Democrats are attempting to resurrect a plan announced last May to invest $150bn in road, bridge and water systems construction. "But that was then and this is now," says Andrew Ross in the San Francisco Chronicle. Individual states have been recklessly loading up on debt for too long – doubling the $200bn in tax-supported debt they held in 1998 in just a decade. Now that property tax revenues are dropping off – New York is expecting to lose a third of its total next year as Wall Street is pared back – they will have to face the consequences of borrowing binges. Some cities are already toying with bankruptcy, says Joe Mysak on Bloomberg. Last year, $300m in municipal bonds defaulted. So far this year the figure is more than five times that sum. We look at the impact of all this on US infrastructure stocks below.

    How the crunch will affect our infrastructure tips

    US infrastructure firms have fallen along with the broader markets over the last fortnight. Our favourite US water infra*structure stock, Northwest Pipe (Nasdaq:NWPX) – the leading US manufacturer of large diameter and high-pressure steel pipes – tipped at $35 in May last year, has fallen from $62 to $41 in recent weeks. But it's better placed than rivals, having recently reporting a record order backlog of $264m. On a forward p/e of 12.4, it remains cheap.

    Bridge builder Granite Construction (NYSE:GVA) has also taken a big fall and is now valued on a forward p/e of 11. Then there's Insteel Industries (Nasdaq:IIN), which produces the steel structures used to reinforce bridges. A 100% gain since we tipped it has since been wiped out.

    So, while these companies are cheap and will be kept busy on selected high priority projects that can't be sacrificed, the risk of project cancellations is high. Overall, then, we recommend that potential buyers now wait until problems in the municipal markets have been resolved. Once that happens, don't miss out on a hugely compelling investment story – the rebuilding of America's infrastructure.

    US state finance: why America's nightmare has barely begun - MoneyWeek

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    Elite Member cupcake's Avatar
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    And who thinks another stimulus check is going to help? Just say no to the stimulus check!
    My grace is sufficient for you, for my my strength is made perfect in weakness...I love you dad!
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    Elite Member Grimmlok's Avatar
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    It'll help people pay their bills
    I am from the American CIA and I have a radio in my head. I am going to kill you.

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    Elite Member cupcake's Avatar
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    They want people to pump money into the economy, shop shop shop.
    At as much as 300 billion dollars that makes no sense. Oh! Then we get to pay 8% tax on that to go towards the debt. Whoo hoo!
    My grace is sufficient for you, for my my strength is made perfect in weakness...I love you dad!
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    Elite Member Grimmlok's Avatar
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    your econony is a consumer based economy, what choice do you have
    I am from the American CIA and I have a radio in my head. I am going to kill you.

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    Elite Member Fluffy's Avatar
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    Cupcake, have you ever taken an economics class?
    The federal government should go on a spending spree

    Nothing expresses McCain's ignorance of basic economics like his call to freeze expenditures. Only massive government investment can help us now.
    By Joe Conason

    Oct. 10, 2008 |

    When the last presidential debate concluded -- in what already seems like a different era -- many observers complained that neither Barack Obama nor John McCain displayed the gravity and substance demanded by a world on the verge of severe recession or worse. But if we take McCain at his word, his misunderstanding of what must be done is worse than mere obtuseness.

    The “freeze” in government spending promoted by him and his running mate, Sarah Palin, if they could somehow enact it, would be the single most destructive policy decision possible. As an idea, the freeze represents not only McCain’s confusion about basic facts -- how can he say he will freeze spending at the same time he proposes a $300 billion program to buy up bad mortgages? -- but the fundamental economic ignorance that he once so famously confessed.

    McCain is not alone, of course. The pundits, editorialists and debate interlocutors who insist that the presidential candidates should tell us how they will cut federal spending to “balance” the $700 billion bank rescue and that they must focus their attention on cutting “entitlements” share his misunderstanding of the imperative that is now upon us.

    That imperative is for government to spend, spend, then spend more.

    Everyone now understands that the world is entering a new age whose contours are far from clear. But we have already seen old ideological shibboleths crumble, as the free-market fundamentalists of the Bush administration nationalize major companies, take over business lending as a federal function, and prepare to assume an ownership stake in much of the financial industry. Those abrupt decisions were far more radical than ramping up spending to fend off the ravages of recession -- and yet somehow our public mind-set remains haunted by budget balancing, as if our biggest problem were the deficit. News anchors tremble at the digital numbers flickering upward on the “deficit clock,” as if that were still our biggest problem.

    As a nation, we are so accustomed to antigovernment rhetoric and prejudice against public expenditure that our politicians may block (or more likely just delay) the actions that could restore growth. For most of the past two or three decades, the Democratic leadership has been just as rigid about the need to reduce spending and balance budgets as the Republicans -- an obsession that is benign in periods of rapid growth, but very dangerous when the world economy is on the verge of crashing.

    Sane and sensible responses to that danger are not easy to find in America’s mainstream media, even now. Journalists and broadcasters are too busy trying to add up the costs of what candidates have promised -- and to determine whether those promises are compatible with simultaneous promises to reduce spending and taxes.

    On the other side of the Atlantic, however, a bracing realism has set in even on the traditional right. Consider the words of Samuel Brittan, a student of Milton Friedman's, a former advisor to the Thatcher government and one of Britain’s most eminent and enduring exponents of libertarian economics. He is now quoting John Maynard Keynes, the great 20th century economist whose theories of countercyclical spending have long been scorned by right-wing thinkers here and in Europe.

    Friday, in fact, Brittan opens his Financial Times column, headlined “Keynes, Thou Should’st Be Living …,” with a long excerpt from a radio speech Keynes delivered in January 1931, which argued forcefully for massive government spending on public works to rebuild England. Brittan dismisses worries about spending at this moment of crisis and endorses strong coordinated action to increase the availability of credit, even if that might mean full nationalization of financial institutions.

    “Already there are warnings that all such devices will increase budget deficits and debt,” he writes. “So be it. Maxims about debt that might be prudent for families can be the height of folly for governments. Keynes in the above quotation was writing at the onset of the Great Depression. But can we not act pre-emptively? I realize that people find it psychologically difficult to take on board a crisis that calls for more spending rather than belt-tightening.”

    In the same edition of the F.T., the Lex column was even more blunt:

    “It is time to get real. The western financial system is now, perhaps, stabilized. Banks are in retreat. Civil servants are taking the place of bankers … That leaves the most important policy objective: supporting economic growth … Governments’ ability to spend their way to growth is crucial.” With a curt nod to the business readership, Lex acknowledges that this advice “goes against purist free market theology.”

    Indeed it does -- and it must sound like heresy to politicians such as McCain and Palin, who remain enthralled by a defunct and useless ideology. Barack Obama likewise makes implausible claims about budget balancing and spending reductions, but at least he has resisted demands to identify what parts of his platform he will abandon -- and has blasted the McCain freeze proposal as stupid and unfair.

    There are places to cut spending, of course, beginning with the gigantic waste of the war in Iraq and most of the missile defense program. There are sensible ways to enhance revenue too, such as imposing windfall-profits taxes and closing down offshore tax havens.

    There are also many wise ways to make the necessary spending constructive rather than wasteful. We have allowed the amazing public infrastructure left to us by the greatest generation to fall into terrible disrepair; we need a new broadband system that reaches into rural America and a new electrical transmission grid; and we need huge investments in energy and water conservation.

    There could be nothing more ruinous to us now than the Republican notion of thrift.



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    Quote Originally Posted by cupcake View Post
    They want people to pump money into the economy, shop shop shop.
    At as much as 300 billion dollars that makes no sense. Oh! Then we get to pay 8% tax on that to go towards the debt. Whoo hoo!
    At the risk of sounding totally ignorant as I have not background or education in economics/finance, how in the hell did we get in such a mess? I sort of understand the Fannie Mae/Mac fiasco but I don't how, "BAM, it has all gone to hell in a handbasket at once." I guess this has been brewing for some time but how come no one saw it? I'll take a check if they give me one but how is that going to get us out of this mess?

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    Elite Member kingcap72's Avatar
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    Quote Originally Posted by ya-ya_sister View Post
    At the risk of sounding totally ignorant as I have not background or education in economics/finance, how in the hell did we get in such a mess? I sort of understand the Fannie Mae/Mac fiasco but I don't how, "BAM, it has all gone to hell in a handbasket at once." I guess this has been brewing for some time but how come no one saw it? I'll take a check if they give me one but how is that going to get us out of this mess?
    Spending 10 billion dollars a month in Iraq for the last four or five years hasn't helped. Plus, America doesn't really export any major goods like we used to, so there goes a lot of income that would bolster the economy. Plus, too many Americans have been living beyond their means with credit cards and homes that they couldn't afford to buy in the first place.

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    Indeed, Kingcap. Right now 51% of every tax dollar collected goes to the military and it is projected to increase to 68% by 2012. That would be a good place for Obama to start. Eisenhower famously warned about the Military Industrial Complex taking over our economy in his final address before leaving office. Fast forward 48 years and here we are.

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    Elite Member nwgirl's Avatar
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    Quote Originally Posted by ya-ya_sister View Post
    At the risk of sounding totally ignorant as I have not background or education in economics/finance, how in the hell did we get in such a mess? I sort of understand the Fannie Mae/Mac fiasco but I don't how, "BAM, it has all gone to hell in a handbasket at once." I guess this has been brewing for some time but how come no one saw it? I'll take a check if they give me one but how is that going to get us out of this mess?
    Yeah, it's been brewing for two whole years since Dems took control of Congress, dontchaknow? Total nationwide economic collapse in two years. It could happen, right?

    Oh yeah....not so much.
    "The difference between genius and stupidity is that genius has its limits."

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    Elite Member WesCAdle's Avatar
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    Quote Originally Posted by kingcap72 View Post
    Spending 10 billion dollars a month in Iraq for the last four or five years hasn't helped. Plus, America doesn't really export any major goods like we used to, so there goes a lot of income that would bolster the economy. Plus, too many Americans have been living beyond their means with credit cards and homes that they couldn't afford to buy in the first place.

    It was revealed that of that 10 billion a month we are spending, we are actually paying contractors to ship sand from Kuwait to Iraq - very vital for the poor soldiers who need to arc weld their own vehicles with scrap to make them safer. Makes me sick!

    I agree too that Americans have been living "reality show" lives buying way more than they can afford, mostly on credit. As always King, you nailed it!
    as privileged as a whore...victims in demand for public show, swept out through the cracks beneath the door, holier than thou, how?

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    Not just in the middle east. Of the 160 countries on the planet, the US has at least one military base in 130. In many countries, they have multiple bases. In Japan, for example, on the island of Okinawa which is 1/3 the size of Rhode Island, the US has 12 military bases, covering 80% of the island. How is this necessary?

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    Elite Member Grimmlok's Avatar
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    they're used to project US military power into asia should the need arise.
    I am from the American CIA and I have a radio in my head. I am going to kill you.

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    Elite Member Just Kill Me's Avatar
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    I wonder how much money Blackwater and Eric Prince have given to the IRS and not politicians.
    KILLING ME WON'T BRING BACK YOUR GOD DAMNED HONEY!!!!!!!!!!

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    At the end of WW2 in the Allied peace treaty with the Japanese, one of the conditions was the Japanese were not allowed to have their own military.

    In exchange, the US would defend the Japanese from any external threats. Maritime defense, ballistic missle defense, domestic air control, and disaster response operations all became the responsibility of the US. The Japanese maintain a small group of forces for self defense, and this is a sort of internal federal police department.
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