Mish's Global Economic Trend Analysis

Philadelphia, 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales
German Reader Tackles Question "What Percentage of the Vote will Anti-Euro Party AfD Receive in Upcoming Election?"
55% of Americans Say Their Income Taxes are Fair; 46.6% Paid No Income Tax in 2011

Philadelphia, 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales

Posted: 16 Apr 2013 09:38 PM PDT

You know a city is in deep trouble when its mayor invites Wall Street but not the press and not private citizens to a closed meeting to discuss the future, including a sell-off of city assets.

Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, did just that.

My translation: Philadelphia is bankrupt. However, that easily discernible fact will of course be denied until it officially happens.

Please consider Philadelphia Holds Closed Meeting With Wall Street

Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, will address investors at a conference financed by underwriters and closed to the public and the press.

The invitation bills tomorrow's meeting as a chance to hear "Philadelphia leaders and investors discuss building the city's future."

Philadelphia is hoping to attract investors for the city, which is rated three steps above junk by Standard & Poor's. The city and its authorities have $8.75 billion in outstanding debt as of September, according to bond documents. Philadelphia's pension system is 47.6 percent funded this year, the documents say.

Tours of city assets are set for the second day of the conference, including the Philadelphia Gas Works, the largest municipally owned natural-gas utility in the U.S. The city plans to hire a broker to steer the sale of the system, which may fetch as much as $496 million, according to Lazard Ltd. (LAZ)

Sam Katz, chairman of the Pennsylvania Intergovernmental Cooperation Authority, created in a 1991 state law that oversees the city's finances, said that with the conference being held locally, it "certainly created some concern on the part of people that it should be made public."

He's more troubled, however, by the fact the school district isn't on the agenda, he said. Facing a $304 million deficit, school officials have asked the city for $60 million and the state for $120 million.

"The school district's in a crisis," Katz said. "They're the same tax base."

Philadelphia officials facing a $1.35 billion spending gap over five years voted in March to shut 9 percent of its public schools.

Philadelphia, 5th Largest City in US is Bankrupt

It does not take a genius to figure out what is going on here. Philadelphia is bankrupt. Without even seeing the details, it is safe to assume untenable union wages and pension benefits are at the heart of it all. A 47.6% funded pension is rather telling in and of itself.

Gutless Mayor Michael Nutter does not even have the decency to let the public or the press hear what is going on. Instead he invited Wall Street to a private tour of Philadelphia's assets, hoping to sell assets and stave off the inevitable.

What fundamental issues is Nutter solving?

Pensions? No
Schools? No
Union Salaries? No
Bloated Payrolls? No
Benefits? No

Instead of inviting Wall Street to a private tour, Nutter ought to be inviting the press and private citizens to a press conference to declare the city's bankruptcy.

We've been down this path before, most recently in Stockton, California. Here are some Stockton Bankruptcy Articles to consider in case you are not familiar with the story.

Most relevant to Philadelphia is a ruling the Stockton Bankruptcy is Valid, City Acted in Good Faith. The judicial ruling means bondholders are at risk, and the city will not be forced to raise taxes to pay off creditors.

Also see CalPERS Pension System in the Crosshairs of Stockton Bankruptcy Dispute.

With those rulings, Philadelphia's cost of borrowing is likely to soar. Regardless, the city is nothing but a walking zombie now. The end is at hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

German Reader Tackles Question "What Percentage of the Vote will Anti-Euro Party AfD Receive in Upcoming Election?"

Posted: 16 Apr 2013 12:40 PM PDT

Polls show the support for the anti-euro Alternatives for Germany AfD party as high as 17% according to the Financial Times.

However that 17% is the number of voters who would "consider" voting for an anti-euro party, not the number of people committed to that outcome.

Specifically, the FT article states "AfD is a late entrant for the election on September 22 and might not be radical enough to attract protest voters it needs in order to make it over the five per cent vote threshold for seats in the Bundestag."

The AfD, led by economics professor Bernd Lucke, is dominated by former CDU members who became disillusioned with the chancellor's European policy that is broadly supported by a majority of the public."

Underestimating the Vote

In contrast to the possibility AfD receives less than 5% of the vote as mentioned by the Financial Times, reader Bern who lives in Germany believes AfD is going to receive substantially more than 10% of the vote.

Bern writes ....

Hello Mish,

I just returned from the foundation congregation of AfD party in Berlin.

About 1500 party members from all parts of Germany came to Berlin to form the federal part of the party as per legal requirement in order to participate in the coming federal elections. The party is now legally formed, it has a legal party statute and an election program.

This means that about 50% of all legal requirements are now met. We have another 100 days to meet the other 50% (establish a State arm of the party in each federal State (16) and to collect 2000 signatures in each State). We do not expect any problems arising from these two obstacles.

It can now safely be assumed that AfD is "open for business" for the coming federal elections.

This party is something entirely new in Germany. It does no longer follow traditional "dividing lines" between left and right or conservative and liberal. Our members are clearly from the heart of the "bourgeois" society of Germany. Small entrepreneurs, self-employed people, teachers and professors, doctors and lawyers, skilled workers, craftsmen,.... in short, a wide variety of the so called "better educated" part of society, who naturally have a rather diverse ideological background.

The common theme uniting this varied crowd is the desire to get rid of the shackles of the Euro and to return to democratic values, both in Europe as well as in Germany.

With about 10,000 members and growing rapidly, I would be surprised if the party received less than 10% of the votes in the coming German federal elections. I am prepared to stick my neck out and predict a figure substantially higher.

AfD will have a considerable influence on German politics in the coming months. It is now no longer possible for the other parties to ignore this new movement.

CDU, SPD, FDP and the Green Party can no longer avoid the Euro as the dominant and overriding theme of the coming German elections.

Chancellor Merkel had wanted to do a "sleeping pill" campaign on such peculiar subjects as "fairness", "family values" and the like. SPD and Green Party were happy to follow. FDP added some "lowering taxes" issues to the mix.

As of today, Merkel can kiss that objective goodbye.

The Euro and democracy will be the overriding themes of the coming elections. This will catapult AfD into the minds of the people here.

As the Euro comes under attack from all sides. I wonder if an orderly dissolution is still possible or if the result is a disorderly collapse. I still believe the latter is more likely.

Best wishes
Bernd

Given that the nannycrats have underestimated the backlash of every policy decision and every important vote, especially in Italy, I am a firm believer that reader Bern is correct.

In a followup post, we will discuss what this means for chancellor Merkel. Here's a hint. If you are a Merkel supporter, the result won't be pretty.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

55% of Americans Say Their Income Taxes are Fair; 46.6% Paid No Income Tax in 2011

Posted: 16 Apr 2013 10:22 AM PDT

The percentage of Americans who think their income tax is fair has fallen to 55%, the lowest level since 2001 according to a recent Gallup Poll on Income Tax Fairness.

Gallup's history of asking this question stretches back to the 1940s. From 1943 through 1945, during World War II, few Americans complained about their taxes, with an average of 87% of Americans saying their taxes were fair. That dropped down to an average of 61% in 1946, the first year after the war.

Gallup resurrected the question in the late 1990s, when an average 48% said their income taxes were fair, including the historical low of 45% in 1999. Americans' views of their taxes as fair improved from 51% in 2001 to 58% in 2002, shortly after the Bush administration put into place a round of tax cuts.

46.4% Pay No Income Tax

According to the Tax Policy Institute 46.4% paid no income tax in 2011.

The Gallup question specifically stated "Do you regard the income tax you will have to pay this year is fair?" It did not ask if the system was fair.

If those who pay no income tax think their zero share is fair (and logically they should), then a mere 16% of those who do pay taxes think their share is fair.

Here is my math: 55% think their share is fair. Subtract the 46.4% who pay nothing (and logically should be happy about that), the net is 8.6 percentage points. (8.6 / 53.6) * 100 = 16%

I wonder if some people who pay no income taxes misunderstood the question and said taxes were unfair because they want those who do pay taxes to pay more. Perhaps some of those who pay nothing, want more money back.

Bear in mind that most of those who pay no income tax still pay property taxes, sales taxes, and payroll taxes (Social Security and Medicare). So, perhaps some of those who said their zero share was "unfair" do not realize they pay no income tax.

For more on who pays and who doesn't, How Stuff Works answers the question Is it true that only 53 percent of Americans pay income tax?

Here is the answer in a nutshell: The top 20 percent of Americans earn 53.4 percent of the total U.S. income, but pay 67.2 percent of total income tax.

Is that fair? Are your taxes fair?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

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