{"id":28145,"date":"2012-03-12T08:52:26","date_gmt":"2012-03-12T12:52:26","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=28145"},"modified":"2012-03-12T08:52:26","modified_gmt":"2012-03-12T12:52:26","slug":"if-the-economys-recovering-why-is-the-largest-ever-u-s-city-bankruptcy-on-the-horizon","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/12\/if-the-economys-recovering-why-is-the-largest-ever-u-s-city-bankruptcy-on-the-horizon\/","title":{"rendered":"If the Economy’s “Recovering,” Why is the Largest-Ever U.S. City Bankruptcy on the Horizon?"},"content":{"rendered":"

By Elliott Wave International<\/span><\/h3>\n

As pundits chatter about an economic recovery, 80 miles east of San Francisco you’ll find a city (pop. 292,000) facing bankruptcy:<\/p>\n

Stockton is on the verge of becoming the largest city in the United States to declare bankruptcy…<\/p><\/blockquote>\n

San Francisco Chronicle<\/em> (3\/4)<\/p>\n

Bloomberg<\/em> reports (2\/25) that it costs the city $175,000 just to get a consulting firm’s fiscal evaluation. Management Partners issued a report which said:<\/p>\n

…the city took on a large amount of debt in anticipation of ongoing growth that now exceeds the city’s ability to pay.<\/p>\n

Compensation packages exceeded sustainable levels and the city assumed a significant liability for improved retiree health coverage without sufficient recurring revenues to cover growing costs…<\/p><\/blockquote>\n

Stockton also has one of the nation’s highest home foreclosure rates and has been called “Foreclosureville USA.”<\/p>\n

And Moody’s just downgraded Stockton’s rating to Ba2, which is two levels below investment grade.<\/p>\n

In the same Bloomberg<\/em> article, the California State Treasurer said “The reputational stain can bleed onto other local issuers and the state, and that can hurt taxpayers in the bond market.”<\/p>\n

Yet in recent months investors have been enamored with municipal bonds. Our December Financial Forecast<\/em> said:<\/p>\n

No matter how thick the storm clouds over state and city finances become, the belief in a bullet-proof municipal bond market just seems to grow. As the [chart below] shows, the ratio of AAA municipal bond yields to comparably-dated U.S. Treasury yields rose…in August.<\/p>\n

\"\"<\/p>\n

…investors still believe munis are safe, but we’ll stick with our bearish forecast…the evidence continues to mount that a change for the worse is underway. Deflation will only accentuate the impact of waning revenue streams, underfunded pension liabilities and bloated labor costs.<\/p>\n

Financial Forecast<\/em>, Dec. 2011<\/p>\n

Other municipalities facing recent bankruptcy include:<\/p>\n