NC Renegades

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The wave of capital destruction which many have been warning about for the last few years, is now breaking like a tsunami – Poland, Ireland (also here), Spain, Germany (and here), and the rest of the Euro-zone (and here) are being inundated with failures and the overhang of immediate risk is effectively unsurvivable for the currency union, at this point. The US is actually in just as acute and critical a fiscal and economic predicament – The “Federal Reserve” is out of functional options (save for outright confiscation) as Bloomberg reported in July 2010: delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” (Source) In addition to the intractable Federal  fiscal profligacy, 44 out of our 50 states are functionally insolvent, (the top five are Rhode Island, Connecticut, Massachusetts, Illinois, and Hawaii) as well as hundreds of municipalities and municipal sub-entities such as school districts and water districts on the verge of bankruptcy.  Interestingly, many states restrict the ability of municipalities to file bankruptcy –   only 12 States provide blanket authorization for a city to file Chapter 9, and yet a full 22 States prevent a municipal entity from filing Chapter 9 proceedings altogether. The remaining 16 have restrictions and processes that vary from strict to lenient. In Illinois, a Governor-appointed commission has to decide filing is necessary, after first trying everything else to save the situation.  (source) What all this boils down to is a shocking amount of unresolvable debt, at every level of government, across the United States – while there are no audited figures to define the total risk pool of states and municipalities, those who follow state and municipal bonds have assessed the total bond market at well over $ 40Trillion dollars (this includes pensions and other retirement benefits for workers which are “not fully funded”), and analysts have stated that as much as one third of these bonds are presently at “high risk” of default, and another 30 to 50% at “moderate risk” in the longer term of 3-11 years.  Meanwhile, Morgan Stanley clearly states a warning of “significant weakness at the long end” of the bond curve, beyond the 11 year point  (source P.3). One third, or ~$13.5 Trillion dollars of state and municipal bonds at a high risk of default, right now!  And yet, State and Local bond issuance continues apace at over $25B per month!   Continue reading →

While the world was glued to the developments in the Mediterranean in the past week, Poland took a page straight out of Rahm Emanuel’s playbook and in order to not let a crisis go to waste, announced quietly that it would transfer to the state – i.e., confiscate – the bulk of assets owned by the country’s private pension funds (many of them owned by such foreign firms as PIMCO parent Allianz, AXA, Generali, ING and Aviva), without offering any compensation. In effect, the state just nationalized roughly half of the private sector pension fund assets, although it had a more politically correct name for it: pension overhaul.

http://www.zerohedge.com/news/2013-09-06/poland-confiscates-half-private-pension-funds-cut-sovereign-debt-load