Minnesota reaches a deal
Minnesota agrees on a budget, ending a two week shutdown. But is it just accounting tricks? From the NewsObserver.com (emphasis mine):
Several financial-media outlets ran stories today about state and local governments ramping up their bank borrowing in lieu of issuing municipal bonds. Often this is depicted as “emergency” borrowing to fill thin periods of cash flows. The story of California’s possible “bridge loan” to tide over their current “bridge loan” in Bloomberg was cast this way.
If you’re bad, you pay
Ever wonder why fixed-income investors are often called “bond vigilantes?” Just as a banker charges a homeowner with a bad credit history a higher mortgage rate, bond investors make borrowers pay more if they have a heavy debt load and weak revenue sources. Investors use higher interest rates to crack down on borrowers; the interest rate is higher because there is more risk.
End game for America’s jobs
America will never recover if we outsource everything, including our public infrastructure. Bloomberg made the excellent video above about California outsourcing the construction of a portion of the San Francisco Bay Bridge to Shanghai Zhenhua, a Chinese firm. Shanghai Zhenhua is assembling the section and will then ship it to California for installation. The state is supposedly saving $400 million with this move. The workers at the Chinese facility are making $12 dollars a day.
Sheila Bair, who served as Chairman of the Federal Deposit Insurance Corporation for five years through the financial crisis, has completed her term. In a weekend op-ed in the Washington Post, she urges America to rid itself of its addiction to financing consumption and “growth” with debt. This is the core requirement for America to become financially stable again and to return to “real” growth. From Bair’s Washington Post oped:
Muniland has always been a sleepy corner of the financial markets. This all changed last winter when, from out of the blue, dire predictions of the market’s imminent collapse were made on national television. Since then, there has been a lot of uncertainty about the stability of state and local governments’ revenues and their ability to support their debt loads. States took steps to tighten up the ship and get ahead of the problems. Now the data is starting to come in, and although muniland has many problems to address, matters look much better than were predicted.
Agnes Crane, a columnist for Reuters Breakingviews, wrote an interesting column today about ending the municipal-bond tax exemption. This tax exemption, granted at the federal level, makes the interest earned on municipal bonds free from taxation on the local, state and federal level if it’s owned by an investor residing at the place of issuance.
Every family encounters times when bills are due and they don’t have money. If this happens to a state or local government, they go to the municipal bond market where they can borrow short- or long-term. In the current market they are likely to find a lot of willing lenders. These lenders will lend at very reasonable interest rates, and the terms of the borrowing will be made public so taxpayers can see what their obligations are.
Has Chris Christie “fixed” the problem?
Joan Gralla of Reuters reports that Governor Chris Christie will be signing the pension and health-benefit reform law today. This is an important step for the health of New Jersey’s pension plans, and Governor Christie should be lauded for his accomplishment.