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Posts Tagged ‘debt’
December 5th, 2022 at 10:56 am
Image of the Day: Sure Enough, Credit Card Balances Are Exploding
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As misguided politicians and regulators continue to target short-term lenders, which provide American consumers with vital financial lifelines when the only alternatives are skipping payments, bouncing checks, running up credit card debts or even going to dangerous loansharks, we’ve consistently noted how short-term lenders’ role becomes increasingly important as the U.S. economy deteriorates and credit card reliance skyrockets.  Sure enough, the New York Fed numbers provide an alarming illustration:

Credit Card Debt Skyrocketing

Credit Card Debt Skyrocketing

All the more reason to protect consumers’ access to legal, reliant, efficient short-term lending rather than irrationally target it.

March 13th, 2017 at 1:30 pm
Image of the Day: Does This Dress Make Obama’s Deficits Look Fat?
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Another reason why Barack Obama must enter discussion of the worst presidents in U.S. history, not the best as his stubborn apologists pretend:

Obama Deficit Record

Obama Deficit Record

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June 9th, 2016 at 9:13 am
Puerto Rico Bailout Bill Allows “Gifts, Bequests, or Devises of Services or Property” to Control Board Members
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As reported by Bloomberg yesterday, the PROMESA bailout bill for Puerto Rico includes a provision that would allow members of the control board to “accept, use, and dispose of gifts, bequests, or devises of services or property, both real and personal” for the purpose of “aiding or facilitating” the board’s work.

If that wasn’t bad enough, the House Natural Resources Committee claimed that such language is “fairly commonplace in ensuring statutory objectives are met in circumstances where non-federal sources of funding will be necessary.” Accordingly, the rationalization for the provision in this case is that the board will be able to “fulfill its purpose” in the event that Puerto Rico’s government can’t (or rather chooses not to) provide “sufficient funding” for it.

Will the Puerto Rican government actually fund the control board knowing its existence is widely opposed by the Puerto Rican people?  And, of course, there’s the little matter of Puerto Rico allegedly being “out of money,” as their governor has so stridently claimed for months. According to the CBO, the board will cost $370 million over its lifetime.  So it appears that these gifts will come in handy.

So who will be in the giving spirit?

The provision is crafted in such a way that any stakeholder looking to buy influence on the board will be able to do so.  Perhaps labor unions (SEIU, in particular), which already have generously given their time and resources to help Puerto Rico’s government produce a report claiming that billions of dollars of its debt is invalid, will take center stage in the gift-giving war, hoping to ensure that the Commonwealth’s underfunded public pension system is provided preference over bondholders.  Or what about certain hedge funds looking to convince the board that their claims should be prioritized over the claims of other bondholders, including those afforded first priority in Puerto Rico’s Constitution?

Indeed, rather than actually weighing Puerto Rico’s competing claims, and clarifying where they stand in the context of Puerto Rico’s Constitution, some in Congress have decided to invite a contest between who can out-bribe the others.  When people say that Washington is broken, revelations like this help explain why.

June 7th, 2016 at 6:10 pm
Who Authored Puerto Rico’s Self-Serving Audit Report?
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Last week, ahead of this week’s vote on the PROMESA bailout legislation for Puerto Rico in the U.S. House of Representatives, a commission appointed by Puerto Rico’s government released a preliminary report charging that the Commonwealth violated its Constitution in issuing billions of dollars of its $72 billion debt.  If the bonds were in fact sold illegally, the report insinuates, then the government shouldn’t have to pay them back.

In other words, they would punish lenders for the Puerto Rican government’s own mistakes.

So not only would Puerto Rico’s government get a free pass from its obligations after illegally issuing some of its debt, it would effectively be allowed to stiff good faith bondholders.

It’s worth emphasizing that the legislative body that created this commission, whose membership includes Puerto Rico legislators with obvious conflicts of interest, authorized the very same bond sales that it now seeks to repudiate.

That is morally and logically backward, and sounds like a plot characteristic of a lawless dictatorship.  And for very good reason:  Shenanigans like this are a tried and true tactic of leftist Latin American countries, rooted in the rhetoric of Cuban Dictator Fidel Castro from 30 years ago.  It has been attempted with varying degrees of success by governments or factions in Brazil, Argentina and Ecuador.  More recently over in Europe, a similar government-appointed commission made nearly identical claims in Greece.

Conspicuously, Puerto Rico’s government has not directed any funding toward this commission that it created a year ago.  So that raises an obvious question:  Who is behind this report?

Well, we already know that SEIU was heavily involved in the drafting process, and was one of a number of “stakeholders” to provide “in-kind labor contributions.”  The SEIU, of course, has a vested interest in ensuring that its members receive preferential treatment over good faith bondholders in Puerto Rico, even if Congress has to rewrite the rules to make that possible.

It also has been reported that SEIU has deep ties to consulting firms retained by the Garcia Padilla Administration.  It also is tied directly to the Administration through former president Dennis Rivera, who came under fire earlier this year for running a questionable non-profit in Puerto Rico whose only paid employee is the governor’s brother.

What about those “other stakeholders” who contributed?

We can’t know for sure, but there are commonalties between Puerto Rico and other governments that have attempted similar tactics.  For example, they all had a common ally in Jubilee, the leftist religious organization that has fought to wipe out bondholders in debt disputes across the world, and which has been a staunch advocate before Congress of doing the same to the American savers who lent money to Puerto Rico.

Ecuador, Argentina and Greece also all at one point retained the same counsel as Puerto Rico, which has built a reputation helping leftist governments to avoid repaying the money that they’ve borrowed.

One thing is clear:  The Commission’s report amounts to a political and negotiating ploy.  It’s designed to give Puerto Rico enormous leverage over the innocent people from whom it borrowed, threatening them with the prospect of the all-powerful PROMESA control board invalidating 100% of their debt.

Members of Congress should, at the very least, understand the lengths to which Puerto Rico’s government is going to escape its obligations.

April 13th, 2016 at 11:37 am
CFIF’s Response to House Natural Resources Committee re: PROMESA
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Linked here and below is a letter to House Committee on Natural Resources Chairman Rob Bishop, which serves as our response to his invitation for CFIF’s Timothy Lee to testify at today’s legislative hearing regarding HR 4900, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Read the letter here (PDF).

March 12th, 2016 at 10:09 pm
Tell Representative Rob Bishop to Say No to Obama’s “Super Restructuring” Bailout of Puerto Rico
The Center for Individual Freedom (“CFIF”) today launched a radio advertisement in Utah warning against the dangers posed by the Obama Administration’s “Super Restructuring” proposal for Puerto Rico.

Right now, House Natural Resources Committee Chairman Rob Bishop (R-UT) is considering the creation of an unprecedented restructuring regime to address Puerto Rico’s debt crisis. This restructuring mechanism, proposed by the Obama Administration, goes far beyond the authority that states possess under Chapter 9 of the U.S. Bankruptcy Code by allowing Puerto Rico to stiff bondholders who now enjoy constitutional guarantees of repayment in favor of bailing out government pensions.

Such a blatant and dangerous violation of Puerto Rico’s Constitution is neither a credible nor conservative solution to the Puerto Rican debt crisis.

As multiple governors have noted in letters to Congress, the precedent set by such a “Super Restructuring” regime would have major consequences for states, including Utah. Borrowing costs would skyrocket for state governments, harming their ability to finance critical services and infrastructure projects, and the value of retirement funds that hold Puerto Rico and other guaranteed state bonds would plummet.

Perhaps even more alarming: If enacted by Congress, this plan could pave the way for a series of Puerto Rico-like events to occur across the country. If Congress demonstrates a willingness to rewrite bankruptcy rules to bail them out, high-spending, debt-ridden states will be even less likely to cut spending and balance their budgets.

CFIF’s radio ad urges all Utahns to call Representative Bishop’s office at (801) 625–0107 and tell him to protect taxpayers and bondholders by saying “no” to the Obama Administration’s “Super Restructuring” bailout of Puerto Rico’s bloated, irresponsible government.

August 24th, 2015 at 11:44 am
Puerto Rico: Rule of Law and Fidelity of Contract, Not Bankruptcy
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At CFIF, we stand for the rule of law and with American taxpayers, investors, savers and seniors against the destructive proposal floated by some in Washington, D.C. of changing longstanding law to allow Puerto Rico to declare bankruptcy.

Accordingly, we’re happy to see that in her weekly “The Americas” column in today’s Wall Street Journal, Mary Anastasia O’Grady highlights the way in which pro-bankruptcy advocates undermine the rule of law by disregarding contractual property rights:

The governor, and the legislature which his party controls, made a conscious decision when they approved the budget not to put the funds aside for that payment.  ‘They are explicitly legislating default because they think that puts the creditors on their knees.  Then the creditors will have to make concessions…  Creditors have protections [in bond contracts],’ he adds, ‘and a court of law is going to enforce those agreements.’  Securitized bonds provide bondholders with a property right to a designated cash-flow stream.”

As we specified previously, better alternatives exist:

For example, the Puerto Rican government could actually pay the hundreds of millions of dollars it owes to the power authority (PREPA), or Congress could impose greater oversight over Puerto Rico.  Remember, a financial control board was effective in reforming the District of Columbia’s finances 20 years ago, accomplished on a bipartisan basis by a Republican Congress and a Democratic president.  Ultimately, that might be the way to put in place comprehensive, structural reforms so that Puerto Rico never again spirals out of control.”

The solution is adherence to the rule of law and the enforcement of mutually bargained-for contract, not yet another bailout imposed upon American taxpayers.

August 20th, 2015 at 10:20 am
Greetings From Puerto Rico… the Welfare State
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Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

July 27th, 2015 at 4:50 pm
Video: Puerto Rico Today, America Tomorrow?
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In this latest installment of the Freedom Minute, CFIF’s Renee Giachino discusses Puerto Rico’s debt crisis, explains why a Chapter 9 bailout is a bad idea, and warns that Puerto Rico should serve as a wake-up call for the entire nation to get its fiscal house in order.

December 17th, 2013 at 6:53 pm
GOP to Strike Back on Debt Limit?

If you’re disappointed by Paul Ryan’s budget deal to avoid another government shutdown, the House Budget Chairman has a message for you.

Wait till February.

That’s when the debt limit will be reached and, according to Ryan, when Republicans in Congress will try to extract some meaningful concessions from Democrats.

Of course, Ryan didn’t divulge any specifics about what kind of concessions would qualify, likely because he’s waiting for the results from a GOP confab in the New Year to settle on a strategy.

I’m skeptical. Ryan’s budget deal takes most of the obvious targets off the table until 2015 – that is, after the midterm elections – making it hard to see what leverage he and other Republicans in Congress can exert on Democrats and President Barack Obama to curb their spending habits.

If recent history is any guide, the most likely scenario is that Republicans continue to fracture over fiscal issues while the Democrats get an assist from the mainstream media in raising the debt limit.

The bitter pill for conservatives to swallow is that House Republicans have almost no ability to make substantive changes in law or policy unless and until the party regains control of the Senate. If the upper chamber flips next year then the silver lining to Ryan’s budget deal and the likely debt ceiling capitulation it’s that they might be the last time the GOP negotiates from a position of weakness.

November 25th, 2013 at 5:52 pm
After Obamacare, Cities Want Pension Bailout Too

After decades of kicking the financial can down the road, some of America’s biggest cities now want to try throwing it up the ladder.

Starting January 1, Detroit will move its retirees to Michigan’s federally-run Obamacare exchange. Instead of the previous full coverage paid for by taxpayers, each retiree will get a $125 monthly stipend. The move is projected to save the city roughly $120 million.

Chicago and other cash-strapped cities are considering similar options.

But the move to offload state and local obligations onto federal taxpayers is just getting started. Writing for City Journal, Steven Malanga explains that municipal debt related to unfunded pensions far outweighs the amount owed to retiree health benefits.

To big city mayors the solutions, of course, are identical – Ask Uncle Sam for a bailout.

At some point, America’s entitlement culture – up and down the socio-economic ladder – has to take a back seat to fiscal reality. We’ll see if enough people are ready to have such a debate when the 2016 presidential election rolls around.

October 17th, 2013 at 11:19 am
Gov’t Before the Shutdown vs. Gov’t After the Shutdown
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Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

September 27th, 2013 at 3:03 pm
Top 10 Biggest Civic Pension Liabilities in America

“Most of the 50 local governments with the largest pension debt have worker retirement liabilities that are greater than their annual tax revenue, according to a new report from the credit-rating firm Moody’s,” says the lead in a Washington Post story.

The emerging leader in the deepening pension saga is Chicago, whose “pension liabilities were equal to 678 percent of its revenues as of 2011,” notes US News & World Report.

Here are the others in the top (or is it bottom?) ten:

Rank Debt Issuer Pension Liabilities as Percentage of Revenue

1. Chicago 678.2 percent

2. Cook County (Ill.) 381.6

3. Denver County School District 1 341.6

4. Jacksonville, Fl. 326.9

5. Los Angeles 324.5

6. Metro. Water Reclamation District of Chicago 323.4

7. Houston 312.4

8. Dallas 292.5

9. Clark County (Nev.) School District 259.1

10. Phoenix 240.2

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April 25th, 2013 at 4:37 pm
Video: Obama’s Make-Believe Budget
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In this week’s Freedom Minute, CFIF’s Renee Giachino discusses the president’s budget proposal and how its calls for even higher taxes, higher spending, bigger government and more empty promises will do nothing to get us out of the Obama recession.

February 19th, 2013 at 12:31 pm
More Local Govt. Corruption in California

An investigative report from the Orange County Register deserves to be read in its entirety, but here’s my executive summary.

Hundreds of schools in California enlisted the services of a bank to underwrite school construction bonds, known on Wall Street as “capital appreciation” bonds.  The key attraction: no payments on principal or interest for 35 years.

Of course, that kind of delay isn’t free.  One school district in Orange County is estimated to owe $13 for every $1 borrowed when the bills come due.  This means that for one $22 million bond issue in 2011, the Placentia-Yorba Linda school district will eventually owe $280 million – 13 times the original amount.

It gets worse.  In 2008, thanks to arguably illegal politicking by the bank underwriter, district voters approved up to $200 million in bond issuances.  But while not all of the total are capital appreciation bonds, those that are could very well bankrupt the district for a generation or more.

The failures on display here are all too familiar.  Public officials opting to mortgage the future to look like a hero in the present saddle taxpayers with huge financial burdens.  Financial whizzes with no ethical scruples abuse the system for big profits.  And money wasted on concrete eye-candy – a football stadium and 600 seat performing arts center – while funding for classroom instruction gets reduced.

While there is no silver lining to the Register piece, it’s worth reading as a reminder of how much American government at all levels needs a deep renewal of ethics, thrift, and a commitment to the common good.

January 23rd, 2013 at 8:01 pm
Senate Dems to Pass First Budget in Four Years

The Hill posted a jaw-dropping lead to describe just how broken is the federal budget process:

Senate Democrats on Wednesday said they will move a budget resolution through the Budget Committee and onto the Senate floor for the first time in four years.

Despite protests to the contrary, the move is in response to a House-approved measure to move the nation’s debt ceiling back from late February to early May.

It’s hard to applaud a group of adults for finally getting the regular budget process going in the Senate.  Still, it’s a sign of progress that a budget may actually be produced in accordance with federal law.

November 5th, 2012 at 4:45 pm
Want to Reduce Public Spending? Make Government More Efficient
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There’s a certain strain of thinking on the right that scoffs at the notion of “efficient government.” The skepticism of what seems to be an unobjectionable goal has a few sources.

First, many pundits point out that the nation’s constitutional design is predicated on checks and balances that make government anything but efficient — the explicit goal, after all, is to slow the lawmaking process in an attempt to ensure some measure of deliberation. They’re right about that, of course, but that’s an observation on the lawmaking process, not on implementing or enforcing the law.

Second, conservatives note (also rightly) that government by its very nature (i.e., the lack of market incentives present in the private sector) has a built-in bias towards sclerosis and waste. That’s true as far as it goes, but arguing that government can’t be administered perfectly is not the same as arguing that it can’t be done better.

For a good example of the potential of reformist public administration, one need look no further than the example that Indiana Governor Mitch Daniels set with that most hated of bureaucracies, the DMV (though in Indiana it’s the BMV — The Bureau of Motor Vehicles). Consider this excerpt from Andrew Ferguson’s fabulous profile of Daniels in a 2010 issue of the Weekly Standard:

The state Bureau of Motor Vehicles, another patronage sump that was routinely ranked one of the worst in the country, was drastically reorganized. “[Daniels] likes metrics,” [Director of the Indiana OMB Ryan] Kitchell said. “He likes to measure outcomes.” Every line item in the state budget has at least one objective formula attached to it to indicate how well each service is being delivered. Regulatory agencies track the speed with which permits and variances are granted. The economic development agency has to compare the hourly wage of each new job brought to the state with the average hourly wage of existing jobs. In the case of the BMV, the two most important metrics were wait times and customer satisfaction. Now each receipt is stamped with the time the customer arrives and the time his transaction is completed. Wait times have dropped from over 40 minutes to under 10 minutes. Surveys put customer satisfaction at 97 percent.

So it can be done. And by the way, it’s also a cracker jack method for keeping government outlays under control. From Walter Russell Mead, writing at his Via Meadia blog:

… By 2025, fully 34 percent of US GDP will be eaten up by the cost of providing public services. Throw in little items [like] interest on the burgeoning national debt and pension and other liabilities, and we are looking at basic governance costs and obligations close to 40 percent of GDP—and heading inexorably higher…

There are two basic drivers behind these numbers: the first is the well known demographic problem that comes from the combination of increased longevity and falling birth rates. Programs like Medicare cost more as people live longer, and reduced population growth means that the workforce grows more slowly than the number of old people drawing on government services and transfer programs.

But the second driving force, which [an] Accenture [study] highlights very usefully, is less well understood: the catastrophically slow growth of productivity in the government workforce. Think of this as “bureaucracy drag;” while productivity in the workforce as a whole is rising by 1.7 percent per year, and in private sector service industries it is rising by 1.5 percent each year, in government productivity is rising by a miserable 0.3 percent per year.

Bureaucrats aren’t getting the job done. And the rest of us are paying the price. It’s time for public sector executives around the country to take a page out of Mitch Daniels’ playbook.

October 16th, 2012 at 6:01 pm
5 Points Romney Should Make in Tonight’s Debate

The Heritage Foundation tees up five issues that so far haven’t been mentioned in the Romney-Obama or Ryan-Biden matchups:

1)      Welfare Reform

2)      Trade

3)      Medicaid

4)      Federal Spending and Debt

5)      American-Produced Energy

Each of these is not only critical to American prosperity, but also conveniently is attached to a disastrous policy decision by the Obama Administration.

This summer Obama’s HHS gutted the work requirement for receiving welfare checks that was the hallmark of the mid-1990’s reform.

The President and his fellow liberals in Congress held hostage free trade agreements negotiated by the Bush Administration as a favor to labor unions, and in the process damaged our international standing.

Obamacare is scheduled to hit Medicaid doctors with a 19 percent pay cut starting in 2014.

This is the fourth consecutive year of $1 trillion budget deficits presided over by President Obama, and there is no indication the incumbent will do anything differently if reelected.

As for domestic energy production, Obama’s rejection of the Keystone XL pipeline angered not only consumers paying high gasoline prices, but also the unionized labor that stood to benefit from short- and long-term job creation.

Mitt Romney should look for ways to insert these failures of leadership into his answers during tonight’s townhall debate with Barack Obama.  People need to be reminded that the President’s kneejerk liberalism is bankrupting the country.

August 18th, 2012 at 9:33 pm
Moody’s Warns It May Downgrade California Municipal Debt

The Huffington Post summarizes a new Moody’s Investor Service report that could significantly alter municipal California’s fiscal future:

Moody’s reports that some cities are turning bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.

The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody’s said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

Already three California cities – Stockton, San Bernardino, and Mammoth Lakes – have filed for bankruptcy.  HuffPo quotes Moody’s as saying that of California’s 482 cities, more than 10 percent have declared a fiscal crisis.

Historically, municipal bonds have been some of the safest investments on the market because cities are presumed by analysts to want to pay back their debt in order to maintain access to public bonds.  (Bonds pay for things like school buildings, roads, sewage systems, etc.)

Since California is responsible for 20 percent of the nationwide muni bonds in circulation, a downgrade by a ratings agency like Moody’s would have a significant negative effect on the value of heretofore safe investments.  If investors see California as an unsafe bet – and why wouldn’t they – expect to see the muni bond market dry up and even more cities opting for bankruptcy.

In other words, this is very bad.

April 18th, 2012 at 9:10 am
A Federal Budget That Ignores the Constitution
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Writing in the Washington Times, Richard Rahn — Senior Fellow at the Cato Institute and Chairman of the Institute for Global Economic Growth — puts the current state of federal spending in rather horrid relief:

The federal government is spending about 24 percent of gross domestic product (GDP). Most of it goes for Social Security, Medicare, Medicaid and other entitlement programs. The “discretionary” portion of the budget equals about 9 percent of GDP, with about half going for defense. Until 1930, the federal government normally spent less than 4 percent of GDP, except for the periods during World War I and the Civil War. The Constitution gives the federal government very few tasks for which it is required to spend money — the big item being the “common defense.” Again, up until 1930, the courts forced the federal government to live largely within the confines of the Constitution. Deducting defense spending from the federal budgets before 1930 shows that the federal government lived perfectly well on 2 percent to 3 percent of GDP for the first 140 years of the republic.

What all of this means is that approximately three-quarters of all federal government spending is not required by — and often is contrary to — the Constitution.

Conventional wisdom in Washington increasingly holds that those who wish to see the federal government pare back its expenditures rather than increase the tax burden on the American people are delusional, if not antediluvian. Yet for the majority of American history, the federal government was only a fraction of what it is today — and the Republic did quite well for itself.

Are we really to believe today that spending cuts that would still leave the federal government’s share of GDP several multiples higher than it was less than a century ago mark some civilizational rot? Because by all indicators (Europe comes to mind), the failure to prune seems to be the more perilous course.