Now Counties Going Broke?
Jefferson County sewer-bond credit rating cut to junk, increasing odds of bankruptcy
Jefferson County's sewer-bond credit rating was cut to junk status Friday, increasing the odds of the largest bankruptcy filing ever by a governmental body.
Standard & Poor's, which ranks the creditworthiness of borrowers, downgraded the sewer rating to junk level, citing uncertainty that the county can make debt payments to lenders such as pension plans and money managers who bought bonds. The sewer-bond rating was cut six levels to B, five levels below investment grade, from BBB.
The downgrade intensifies pressure on the county's finances and makes it possible for creditors to demand payment on $341 million of investment contracts called swaps.
The problem seems to be spreading like a virus. Arizona tax revenues negative in January. Florida tax revenues negative. California tax revenues negative. Our cities, counties, and states simply borrowed too much money and are now seemingly having problems making ends meet.
To compound the problem, the American consumer did the same thing. Houses are being foreclosed in record numbers early into the down cycle. Layoffs are on the rise. Credit card defaults are increasing at an increasing rate.
Retailers are shutting down accross the country. Expansion plans are being put on hold. Shopping center vacany rates are on the rise. Same with office vacancy rates.
What happens when too many loaned too much money to too many now resulting too many not being able to afford too much debt?
Is this time different?
Absolutely. First, unprecedented amounts money were borrowed compounded by a potentially deadly new instrument called swaps. Second, in the past we were an exporting nation so our income kept flowing as we kept selling into the downturn(Japan in the 1990s). Now we are a consumer driven importing nation.....how will we solve it this time, shop our way out of it?
If citizens don't have the money to pay taxes, and government doesn't have the money to pay obligations, and bank reserves evaporating calling into question their ability to pay off depositors, how will this negative feedback loop resolve?