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Posts Tagged ‘Bankrupt’

Pinks Slips Coming For 450,000 State and Local Government Employees in 2012

June 3, 2011 Comments off

shtfplan

In June of 2010 we noted that well known financial sector analyst and the woman who blew the doors open on the 2008 mortgage crisis, Meredith Whitney, was forecasting that two million government employees would see their jobs cut over coming years because of fiscal problems.

It’s happening.

Over 300,000 jobs have been cut in fiscal year 2011, and that number is about to increase 50% going into 2012:

Around 450,000 people who work for U.S. states, counties, cities, towns and villages could get pink slips in fiscal 2012, sharply up from the 300,000 positions shed this year, a report said on Monday.

The number of job cuts will rise mainly because the federal stimulus program Read more…

China’s coming fall

January 24, 2011 Comments off

Like the Soviet Union before it, much of China’s supposed boom is illusory — and just as likely to come crashing down

In 1975, while I was in Siberia on a two-month trip through the U.S.S.R., the illusion of the Soviet Union’s rise became self-evident. In the major cities, the downtowns seemed modern, comparable to what you might see in a North American city. But a 20-minute walk from the centre of downtown revealed another world — people filling water buckets at communal pumps at street corners. The U.S.S.R. could put a man in space and dazzle the world with scores of other accomplishments yet it could not satisfy the basic needs of its citizens. That economic system, though it would largely fool the West until its final collapse 15 years later, was bankrupt, and obviously so to anyone who saw the contradictions in Soviet society.

The Chinese economy today parallels that of the latter-day Soviet Union — immense accomplishments co-existing with immense failures. In some ways, China’s stability today is more precarious than was the Soviet Union’s before its fall. China’s poor are poorer than the Soviet Union’s poor, and they are much more numerous — about one billion in a country of 1.3 billion. Moreover, in the Soviet Union there was no sizeable middle class — just about everyone was poor and shared in the same hardships, avoiding resentments that might otherwise have arisen.

In China, the resentments are palpable. Many of the 300 million people who have risen out of poverty flaunt their new wealth, often egregiously so. This is especially so with the new class of rich, all but non-existent just a few years ago, which now includes some 500,000 millionaires and 200 billionaires. Worse, the gap between rich and poor has been increasing. Ominously, the bottom billion views as illegitimate the wealth of the top 300 million. Read more…

Categories: China Tags: , , , , ,

90% of US Cities will Go Bankrupt in 5 Years

January 19, 2011 Comments off

“Throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.” So says former Los Angeles Mayor Richard Riordan.

Reason.tv’s Tim Cavanaugh sat down with Riordan to discuss state and local budget crises, public-sector unions, and why Riordan recently became a fan of current LA Mayor Antonio Villaraigosa.

Approximately 9:40 minutes.

General Electric Bankrupt 2011

January 7, 2011 Comments off

The numbers are staggering! Over $660 Billion in debt. That is almost the entire US federal bail out package that was passed during the financial crisis last year. All for one, albeit very large, company. That company is General Electric. GE has over 300,000 employees and operates in more than 100 countries. Can it really go bankrupt? The answer is yes!

GE seems to have a history of building debt obligations. GE’s long-term asset base grew $200 billion (or 30%) between 2003 and 2008 when prices were at their highest. Now GE is attempting to sell off many of those assets (when prices are low, but they are desperate for cash so they are forced to sell). In the near term GE has to repay or refinance $240 Billion before the end of 2011.

In March of last year GE lost their prized AAA credit rating from Standard and Poor rating agency. Other agencies have them ranked much lower. John Atkins, a fixed-income analyst at IDEAGlobal.com, said “it remained unclear what the impact will be on GE’s borrowing costs. Even with the ‘AAA’ credit rating, the cost of insuring debt of GE Capital had been in distressed territory recently.” This is a dramatic understatement. In fact, last year, the U.S. government had to guarantee $500 billion in GE’s debt. GE’s interest on its debts are about to soar.

As Porter Stansberry said in November of 2009, with the guarantee, GE only spent roughly $17 billion last year to service its $660+ Billion in debt. That’s an annualized interest rate of 2.5%. This is not sustainable. Sooner or later, GE is going to have to pay a market interest rate. The government guarantee expires in 2011 and that is when you can expect costs to soar.

Currently, the yield on high-yield corporate debt is around 10%. GE is now rated two slots above “junk” by Egan Jones. Assuming that GE could still qualify as an investment-grade credit – (since there is some discrepancy between ratings agencies) GE would pay something like 8% on its debt in a free market.

That would cost more than $52 billion a year. Last year, GE earned $11 billion before interest and taxes – in total. That’s not nearly enough money to pay the interest on its debts – whether they’re backed by the government or not.

Check back tomorrow and I’ll show you one way to play General Electric that has already earned 40% returns in just 2 weeks, but has much more to go.

Ross Williams