Mish's Global Economic Trend Analysis

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Cold Hard Reality Hits Oregon, Treasurer Calls for Halt in State Borrowing, Postponement of Pressing Needs Posted: 25 Sep 2010 07:35 PM PDT At long last the truth in Oregon's finances is plain for everyone to see. Please consider Oregon's Treasurer calls for halt in state borrowing Oregon Treasurer Ted Wheeler wants the Legislature to cut up its credit cards before convening in January as the combination of plummeting revenues and past borrowing threaten to lower Oregon's credit scores and increase future borrowing costs. Wheeler on Friday called for a halt on new borrowing backed by the state's general fund until its finances recover. The recommendation was unanimously endorsed at a special meeting Thursday of the state's Debt Policy Advisory Commission. Based on the latest shrinking revenue projections, the commission also has asked the Department of Administrative Services to "reconsider the timing" of some projects that have been approved by lawmakers but for which the bonds have not yet been issued. That list includes a wide mix of pressing needs and stimulus measures around the state, from the new state hospital, a collaborative research building at Oregon Health & Science University, a statewide emergency radio network and a slew of projects at community colleges. "This is the cold, hard reality," Wheeler said, "and I'd rather raise it now so when my colleagues in the Legislature convene in January, there are no surprises and they are fully familiar with that reality." While general obligation bonds are typically used to finance big capital projects with an extended life, lawmakers have tapped them to fund operating costs in the past. The state borrowed $431 million in 2003 to cover operating expenses as it struggled to recover from the last recession. It will be repaying those bonds in $70 million installments until 2013, which will free up borrowing capacity in 2014. Until then, the state's capacity for new debt is essentially zero, according to a report delivered to the debt policy advisory committee from Treasury's debt management division. Mistakes a Plenty Borrowing money to cover operating expenses is just plain stupid. The results speak for themselves. Oregon is out of borrowing capacity until 2014 and it is currently deep in the hole on revenues. That is a toxic mix. Rep. Peter Buckley, D-Ashland, who co-chairs the Ways and Means Committee, said "the Legislature has carefully managed borrowing to stay within the 5 percent limit and will continue to do so." Anyone who thinks Oregon has "carefully managed" this mess is an incompetent fool. Rep. Peter Buckley should be ousted. Pressing Needs? Just look at the nonsense labeled "pressing needs" New state hospital A collaborative research building at Oregon Health & Science University A statewide emergency radio network Slew of projects at community colleges There is not a damn one of those things that can remotely be considered a "pressing need". Indeed, If I was an Oregon Taxpayer, I would hope every one of them is not just postponed but scrapped. It's stupid stuff like that that helped get Oregon in this mess. Moreover, and more critically, Oregon also has the same as every other state: unaffordable union salaries and pensions. Critical Problems Oregon has several major problems. Those in office cannot distinguish between a desire and a "pressing need" The legislature is beholden to public unions Most of the Democrats thinks the solution is to tax everyone to death to make up for falling revenues Genuine Pressing Needs Oregon needs a change in governorship and the state legislature. It's time to boot governor Ted R. Kulongoski and all the idiots who cannot distinguish between a desire and a pressing need. Most importantly, Oregonians need to elect candidates for every office willing to take on the public unions as has New Jersey governor Chris Christie. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Only 18% of Americans Have "a Lot" of Confidence in US Banks Posted: 25 Sep 2010 12:23 PM PDT According to Gallup, Americans Confident in Own Bank, but Not U.S. Banks The percentage of Americans saying they have a "great deal" or "quite a lot" of confidence in U.S. banks stands at 18%, continuing a trend of low confidence recorded throughout the economic downturn. In the same survey, 6 in 10 Americans express confidence in their main or primary bank, defined as the place where they do most of their banking business. Confidence in U.S. Banks Remains Fragile Gallup data show that the reputation of America's banks continues to suffer from the fallout of the financial crisis and bank bailout. On the other hand, bankers should take some solace in that the majority of their customers have a positive view of the place where they do most of their banking. What Does "Confidence in Banks" Mean? Confidence can mean many different things. For example, I am quite confident a huge percentage of banks are insolvent. I am also confident the vast majority of banks are hiding bad housing loans, bad commercial real estate loans, and have not properly marked-to-market probable credit card losses. Moreover, I am confident that large banks, especially Citigroup, are still hiding hundreds of billions of garbage in off-the-book SIVs. Sadly, the Fed is not just turning a blind eye to such behavior, but encouraging it. To help pay for hidden and pending losses, I am confident that banks will raise fees as much as much as permitted by law to nickel and dime customers to death. To balance this mess out, I am quite confident that FDIC will be honored, no matter what it takes. Finally, I am confident that interest rates banks offered by banks will stay low because the Fed is going to keep short-term rates as low as he can for as long as he can, to help insolvent banks slowly recapitalize over time. Whether or not this is "confidence inspiring" or not is certainly subject to a vast amount of subjective interpretation. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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