MuniLand

ZeroHedge points out that the amount of U.S. debt outstanding has just surpassed the latest reading of our gross domestic product:

There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling … And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.

Now there is a whole school of thought, which counts New York Times columnist Paul Krugman among its leaders, that says that despite the amount of debt the federal government has incurred, more government spending and debt are needed given the stagnant state of the economy. Krugman elaborated on this idea in a recent interview with Julian Brookes of Rolling Stone:

A lot of people find emotionally unacceptable the idea that economic suffering on this scale could have a relatively trivial cause. But this has happened again and again through history. And it could be fixed fairly easily, by having government step in and spend.

The U.S. economy sits on a knife’s edge of slowing growth coupled with increasingly heavy debt loads. Fitch Ratings issued a report yesterday saying that U.S. fiscal policy likely increased growth by about 4 percent over the past two years through debt-financed stimulus spending and tax cuts. However, the report drew no firm conclusions about future policy:

The Rockefeller Institute of Government publishes some useful statistics on the collection of state taxes, and I’ve been puzzling over them for a few weeks. What I was trying to reconcile was the difference between the states’ aggregate tax collections and the official economic pronouncements that dated that the recession’s end at June 2009. When the NBER Business Cycle Dating Committee, the official scorekeepers of the business cycle, made its pronouncement, The Economist sketched out some of the reactions to it:

The response to this announcement, already echoing through the blogosphere, is that hey, it doesn’t feel like the recession is over! The dating committee realises this:

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month.

Mini stimulus for muniland?

The White House has been telegraphing the shape of the proposal that President Obama will make tomorrow in his jobs speech to a joint session of Congress.

It looks like it is a half-sized version of the American Recovery and Reinvestment Act of 2009. The media is reporting that the proposal will be about $300 billion but faces stiff opposition from Republicans in the House. I’d suggest that state and local governments not include these funds in their budgets quite yet. Bloomberg says:

Obama’s jobs plan follows the contours of his $830 billion 2009 economic stimulus package, which also stressed tax cuts, infrastructure spending and assistance to local governments. Still, tax cuts would account for a larger portion of the proposal he will lay out this week.

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.

In times of fiscal stress it’s easy to understand why public entities are trying hard to cut costs. But this “cost cutting” is really just off-shoring American jobs. Something has to give — we can’t recover without creating American jobs. It’s our choice, and I choose spending more and creating jobs at home.

Background on the project from Bloomberg.

Hungry market gobbles up new municipal bonds

Bond Buyer reports:

The week’s new inventory can’t seem to reach the muni market fast enough. One trader in Florida said there is little product anywhere. “There are fewer bonds than usual,” he said. “It’s hard to find anything to sink your teeth into.”

It’s a glorious spring day in America and everything continues to bounce along. A little progress here and some fall back there. Oh and that unpleasant negative ratings watch on United States debt from Standard & Poor’s. Yeah that is not good. Welcome to a new week in muniland.

The sun sets over a pond in Rogers, Arkansas, November 8, 2009. REUTERS/Lucy Nicholson

Increasing the muni investor pool:

Marketwatch has an article which frames the proposed Wyden and Coates federal legislation for muni tax-exemption as having the effect of shrinking the investor pool.