If you look through history, these types of credit bubbles cause immense implosions, that lay waste to the countries involved for a few years. What I thought how this was going to play out, has not. Specifically I thought when government officials saw the real "math" that was occurring, they would buckle up and do the right thing. Instead, like everything humans do, the wrong thing is pursued to avoid pain today.
An article I found on Mish was one of the most perverted actions one could dream up. The New York Pension fund is going broke, and townships cannot afford to make payments to keep the pension fund obligations met. (excludes NYC)
Now, the "right" thing would be to start immediate negotiations to curb benefits and cut expenses to meet the benefits. Basically, to ensure the pension fund wasn't set on a course of utter complete fiscal disaster.
Instead, the path chosen was what will amount to in the future is pension funds owed will not be paid out in the years to come. What the NY governor proposing and will likely pass was to borrow FROM the pension fund, to lend the money to the towns, to PAY their obligations to the pension funds until 2013 when principal payments to begin.
Read that again, please. Because the towns can't make their debt payments, they borrowed from the pension fund, to pay the pension fund for debt payments through 2013.
It is really complete insanity. It is basically a "double down" in poker by borrowing from the house after you lost all your money. Yea, it is theoretically possible this will work, but by any sane judgement, its the wrong course. But because the politicians can describe a scenario, no matter how unlikely, that it could work out, it gains support.
My god. The fiscal decimation this country will face after every single avenue of credit is used up, and when nothing can be borrowed anywhere is reached, the DEFLATIONARY collapse that will come will be massive. Beyond my own worst fears.
There is still time to stop this insanity, but from the looks of things, the goal is to create the largest bubble implosion the world has seen. Got to love America, nothing is done "small". If the media crucifies NY politicians for this action, I will have hope that we will avoid fiscal destruction in the US. Without a vocal critic to energize the people, the worst road will be taken to avoid the pain today, and kick the can further down the road.