By John Galt
July 23, 2011
In February of 2008, I wrote about the threat of “Municide” to the municipal securities industry and those who invested in funds or depended on them for their income. It was not meant to be an idle warning or casual threat, but a realistic look at what will happen eventually as the real estate markets collapsed and the Federal government’s impotence would impact the entire market.
From the original piece I stated:
Unfortunately for all of us, the failure to project future revenues and growth does impact everyone in the U.S. The decline in sales tax receipts, property tax receipts, and other fees originally projected from an expanding economic base as well as healthy real estate market, will eventually lead us to city after city, county after county, defaulting on various securities once thought or perceived to be the safest in the nation. As the resets continue this year and next, even more over-valued real estate which will force property tax revaluations and appraisals to be evaluated lower and lower, feeding the vicious cycle downward even more so. Asset devaluations with accelerating commodity inflation will eventually destroy the average American citizen’s standard of living. Add in the starting wave of HELOC and second or third home equity defaults and you have a formula for a banking crisis on top of the municipal bond crisis to come. The result of this economic contraction along with the forced decline in government spending on the state and local level will leave huge revenue gaps that will result in either default or increased federal intervention.
That view has not changed.
Tonight the news broke a little over an hour ago at 10:09 p.m. ET from Bloomberg which could further shake an already unstable financial system next week:
In other words, pension fund and Monoline insurer Armageddon could occur in conjunction with a paralyzed Federal Government and ignorant if not impotent Federal Reserve. This would take the budget deficit turmoil plus risks to insurers, pension funds, etc. and take a month end window dressing event on July 29th and turn it into Godzill eats Bambi in a total market slaughter.
If any story is more important to the markets than this one, it would have to be either war, an actual US bond downgrade, or an outbreak of war. Stay tuned for this outcome in a very turbulent financial market that begins going insane in less than 24 hour from now.