| Public Unions Bankrupt Illinois: Unpaid Bills Top $9 Billion as Comptroller Reports "State Treading Water"; Mish's Eight-Point "Bold" Plan to Save Illinois Posted: 23 Apr 2012 12:54 PM PDT Governor Pat Quinn rammed through the largest tax hikes in Illinois history last year. On January 13, 2011, Governor Pat Quinn signed off on a 67% hike in personal income taxes and a 46% hike in corporate taxes. The result is not what the governor thought. Businesses have fled, more have threatened to leave and Quinn responded with sweeteners. Moreover, Illinois pension plans are still the worst funded in the nation, and the state is still struggling to pay bills. Bloomberg reports Illinois 'Treads Water' as Unpaid Bills Top $9 Billion Illinois's backlog of unpaid bills has risen to more than $9 billion because of pension costs and falling federal aid, leaving the state "essentially treading water," Comptroller Judy Baar Topinka said.
While revenue grew from higher personal and corporate taxes, "Illinois' financial position has not improved," Topinka said in a report today. The combination of unpaid bills to vendors and Medicaid obligations, estimated at $8.5 billion in January, means payment delays will persist, according to the report.
While tax increases boosted revenue by about $7 billion, or 3.9 percent in the first three quarters of the fiscal year that began in June, the gains were undercut by the loss of federal funding and financing of pension contributions directly, rather than through bonds as in the past two years, Baar Topinka said.
Democratic Governor Pat Quinn has proposed a voluntary 3 percent increase in pension contributions from current employees and a cut in cost-of-living increases for retirees.
"Bold action" is required to save the retirement systems, the governor told reporters in Chicago April 20. In fiscal 2010, Illinois had the lowest-funded state pension in the U.S., with assets equal to 45.4 percent of projected obligations, according to data compiled by Bloomberg. Public Unions Bankrupt Illinois Just where was this "bold plan" when Quinn was running for Governor? Nowhere in sight. And now he wants "voluntary" contributions. Give me a break. Illinois is bankrupt and corrupt politicians like governor Quinn, Speaker of the Illinois House, Mike Madigan, and all the union panderers in Chicago ruined the state by giving into "collective bargaining" demands from public unions. Voluntary 3% contributions by unions is not a "bold plan" and will not do a damn thing. Illinois needs to scrap its defined benefit plans immediately and claw back on promised benefits under threat of default. Moreover, Illinois needs to scrap prevailing wage laws and end collective bargaining of public unions immediately if not sooner. Illinois desperately needs a "Bold Plan" before the entire stat looks like Central Falls or Providence Rhode Island, or Detroit Michigan. Mish's Eight-Point "Bold" Plan to Save Illinois - Immediately kill public defined benefit plans going forward
- End collective bargaining of public unions
- Scrap prevailing wage laws
- Tax at an 85% rate all defined benefits above $80,000
- Claw back all pension-spiking
- Lower corporate tax rates to previous levels to attract businesses.
- Set long-term pension plan assumptions at 5% or the 30-year Treasury rate, whichever is lower (currently 3%).
- Default, if necessary on pension benefits above a certain level, whatever it takes to make the state solvent within 10 years, using conservative pension plan assumptions.
The $80,000 cap is s suggested starting point for discussion. It may be higher or lower based on point number eight. Now that's a bold plan, and a badly needed one at that. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Eurozone Manufacturing PMI Hits 34 Month Low; German Manufacturing Hits 33 Month Low; Orders Drop Steeply Across the Board Posted: 23 Apr 2012 09:55 AM PDT Today, European data shattered two long held beliefs by Markit and in general, unthinking economists everywhere. Shattered Myths - European recession would be mild
- Germany would continue to diverge from the rest of Europe
Markit reports Eurozone sees stronger rate of decline at start of second quarter - Flash Eurozone PMI Composite Output Index(1) at 47.4 (49.1 in March). 5-month low.
- Flash Eurozone Services PMI Activity Index(2) at 47.9 (49.2 in March). 5-month low.
- Flash Eurozone Manufacturing PMI (3) at 46.0 (47.7 in March). 34-month low.
- Flash Eurozone Manufacturing PMI Output
The Markit Eurozone PMI® Composite Output Index fell to a five-month low in April, according to the preliminary 'flash' reading which is based on around 85% of usual monthly replies. The index fell for the third month in a row to 47.4, down from 49.1 in March, to signal a faster rate of decline of private sector economic activity. Output has fallen seven times in the past eight months.
Output fell at the fastest rates for five months in both manufacturing and services, with the former seeing the steeper rate of decline.
France meanwhile saw output fall for the second month in a row, with the rate of decline accelerating to the fastest since October. Falling manufacturing output was accompanied by a steep deterioration in service sector activity.
Incoming new business fell for the ninth month in a row, registering the steepest decline since October. Manufacturing new orders fell particularly sharply, down for the eleventh month running and falling at the fastest rate since December. New business at service providers fell for the eighth successive month, showing the largest deterioration since October. New business fell at stronger rates in Germany, France and across the rest of the euro area as a whole.
With inflows of new orders continuing to deteriorate, backlogs of work fell across the region for the tenth successive month, declining at the sharpest pace since November. Backlogs fell at similar rates in both manufacturing and services although, while the former saw a slight easing in the rate of decline, the latter suffered the largest fall since September 2009.
The deteriorating pipeline of work led companies to cut staffing levels for the fourth straight month, with the rate of job losses running at the fastest since February 2010.
Eurozone Reality Markit Finally accepts reality, albeit with a huge understatement " Prospects do not look good." Really? After 5 months of making silly statements about "short, weak recession" complete with Germany bucking the trend, that is acceptance of reality, sort-of. As Goes Europe, So Goes Germany and France As I have been saying for at least six months, the Eurozone recession will be neither short nor mild. Spain, Greece, and Portugal are in outright depressions and Italy may head there. Take a look at that chart above on the periphery vs. France and Germany. France has now caught up on the downside with the rest of Europe and Germany will follow. Coupled with a huge slowdown in China, and a feeble and faltering recovery in the US, there is zero chance that France and the vaunted German export machine will decouple from the rest of Europe. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value; Madrid Rejects Regional Budgets Representing 32.5% of GDP; Treasury Warns of "Immediate" Intervention Posted: 23 Apr 2012 08:37 AM PDT The Spanish hit parade keep right on rolling. Courtesy of Google Translate, please consider a trio of articles forwarded by my friend Bran who lives in Spain. Madrid Rejects Regional Budgets Representing 32.5% of GDP El Economista reports Treasury Rejects Budgets Submitted by Catalonia and Andalusia The Ministry of Finance and Public Administration has returned the draft budget to the regions of Andalusia and Catalonia because it considers its budget rebalancing plan does not fit within the deficit target regions set for this year, 1.5% of GDP.
The newspaper El Pais said today that two of those affected are Catalonia and Andalusia, two of the larger communities, who number between 32.5% of Spanish GDP. Treasury Warns of "Immediate" Intervention Going one step further, Treasury warns that Any Autonomy may be Subjected to an "Immediate" Intervention" Forced Austerity in the regional governments is coming right up. Spanish IBEX Index  The Spanish stock market has now given back nearly all of its gains since March 2009. Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value Please consider Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value The article states it is "ludicrous" that eight of the ten heavyweights trade below their book value. I suggest book values are inflated and the Spanish banking system is insolvent. Certainly credit default swaps on sovereign debt are not encouraging. Check out this nonsense by JP Morgan. "The banking problem is not liquidity, but mainly of confidence," says JPMorgan Pellón mentioning that pointed in recent days that Spanish banks retain about 90,000 million from the program LTRO European Central Bank. Enough money to meet all funding requirements for the remainder of the year.
The balance of mid-cap banks is less oprtimista yet. For example, trades at 0.29 times Bankia the value of its assets and the rest is between 0.4 and 0.5 times.
The banking sector is the one that is suffering the deterioration of its balance sheet, but some utilities and Repsol also find it impossible to trade above its liquidation price. Among the utility companies with greater capitalization is Iberdrola which has a lower book value after the sale of 3.7 percent of its stake ACS take her to make minimum contributions since 2003 this week. Inflated Book Values, Insolvent Banks Banks may have LTRO funding but it would be nice if the clowns at JPMorgan would advise exactly how Spanish banks are going to pay back those loans. The problem is not confidence nor liquidity, but rather solvency. In the absence of further bailouts, many European banks have negative value. What About the Euro? Moreover, JP Morgan missed another crucial point, best expressed by the question: What happens in a eurozone breakup when Spain exits the Euro? Since that is a significant possibility (I believe likelihood), anyone in Spain with any money and any common sense should get their money out of Spain right now. Capital flight is indeed underway and that flight will continue to pressure Spanish equities until it stops. Capital controls may be just around the corner. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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