Print This Article

American States on the Verge of System Failure

wcw-admin (June 23, 2010)

The You-Know-What Hits the Fan July 1st

Sean Hyman

“Where were you on July 1, 2010?

Years from now, someone may ask you that question.

And the reason he’ll want to know is…

July 1st marks the tipping point of the Great State Meltdown.

What’s Going On?

As Sean noted yesterday, European budget woes are gripping the currency markets.

While the mainstream press (and most traders worldwide) dumps on Europe – and occasionally snipes at America’s debt mountain (which is oddly enough, 3-4 times BIGGER), another man-made crisis is playing out… much closer to home.

For years, 48 states have borrowed too much and spent too much – just like the Federal Government. But the key difference is: they can’t print their own money to pay the bills.

And to make matters worse… BY LAW… they must balance their budgets by July 1st.

Sounds simple, right?

But there are two little problems in the way: Massive budget shortfalls and plunging tax revenue:

It’s critical that you understand this escalating debt crisis. What it means for your hometown… and your portfolio.

That’s why I’ve spent months personally studying this escalating crisis.

What was the Most Recent U.S. City to Declare Bankruptcy?

(Hint: If you think it was years / decades ago, think again!)

Answer: Vallejo, California – May 2008.

What scares the beejeber’s out of me is how many cities and states are on the verge of bankruptcy that we do not know about.

How many states are about to lose their AAA ratings (if not already downgraded) in the next 12 months?

So far, we’ve seen cities in California withdraw their pledge to keep citizens safe… due to massive police budget cuts.

Courthouses have been closed. Citizens have lined up – for hours – to pay simple parking tickets. (Not to mention layoffs of teachers, administrative staff and other city service employees, from landscapers to garbage men.)

To try and make up for these funding cuts, police and government officials are hiking fees and enforcing speed limits with very little wiggle room.

Cops (the few that are still left) are ticketing motorists for slight speeding, not wearing seat belts and other moving violations.

What else can you expect with cities that are so desperate to increase revenues?

At minimum, we’ll see slow to low standards of service all around and lack of revenue to state coffers… traits native to third world countries.

I Wish I Could Say “It’s Just California”

The fact is cities all over the U.S. are teetering on the edge of bankruptcy.

  • Colorado Springs has let 1/3rd of its streetlights go dark… sold police helicopters on eBay… and halted all street paving.
  • Arizona has sold – then leased back – its State House and Senate buildings… a desperate one-time move to raise cash.
  • Illinois’ liquid assets have dipped below $1 million… as they scramble to limit fallout from a giant $12.8 BILLION deficit.
  • States from Kansas to Hawaii have considered bills to cut the five-day school week down to four… or cancel entire grade-years altogether.
  • The capital of Pennsylvania has already skipped its 2010 debt payments… and has been downgraded to “high risk junk” by Moody’s.
  • And Toledo, Ohio, admits it may have to lay off EVERY government employee.

Hard to believe, I know. But it’s true. And we’re just scratching the surface. The picture is bound to get a whole lot uglier this summer.

By July 1st, It May Be Too Late

When you realize just how deep the hole is that states have dug for themselves… it’s impossible to deny it… Dozens of American states are heading for system failure.

We take no pleasure in this fact. But time is of the essence. July 1st is the date when the worst offenders’ toxic debt will become obvious to the general public.

Keep your eyes peeled for three major outcomes:

1.) States will make sharp cuts to social services.
2.) Taxes in the worst-off states will head higher.
3.) At some point the Feds will be forced to step in with a bailout.
4.) And ultimately one of the safest income producing investments in the world – municipal bonds – will experience a brutal sell-off.

But as bad as this sounds… it doesn’t have to be the “end of the world” for your portfolio.

As the worst of this crisis unfolds, there will be some amazing opportunities not just in the currencies market, but shorting specific stocks and bonds that are most likely to suffer as we enter a period I call The Great State Meltdown.

To get a head-start – before these threats become known to the general public – before the worst of this debt crisis hits, click here.

Best Regards,

Patrick Bove, Researcher
World Currency Watch

More From The Author