A top economic adviser to the Democratic Party, speaking on deep background, told WMR that the domino-like collapse of the economies of Iceland, Greece, Ireland, and, now, possibly Spain, is coming also to the United States.
One of the triggering mechanisms will be at the end of this month when two million idled workers, now collecting unemployment, will be dropped from the rolls. At the end of December, another two million workers will join the ranks of those who have exhausted their unemployment benefits and a total of 4 million Americans will be without unemployment checks and face destitution.
Four million Americans will put financial pressure on municipalities and state governments already facing bankruptcy. Unlike Iceland, Ireland, Greece, Portugal, and, to some extent, Spain, which have strong central government control, the United States is a federal republic and, as such, the collapse of the economy will be state-by-state and begin at the municipality level, according to our source who has contacts within the Obama White House and the Democratic leadership of the Congress.
Municipalities, which guarantee the pensions of their retired employees through the issuance of municipal bonds, will find themselves faced with bankruptcy and the “Muni” bonds will be rated at junk status.
Municipalities unable to pay out pensions will discover their pension funds can be bailed out by the Pension Benefit Guaranty Corporation (PBGC) in Washington, a federal corporation set up by the Employee Retirement Income Security Act of 1974.When the first municipality declares bankruptcy and seeks a bailout from the PBGC, there will be a domino effect, with others seeing it as a quick way out. Soon, the PBGC will, itself, be forced into bankruptcy. WMR has been told by our source it is doubtful that a Republican Congress will be interested in bailing out the PBGC.
The wildfire of municipality bankruptcies will then spread to the states, with California and Illinois likely to be the first two states to default on their debts and declare bankruptcy.
In order to raise quick cash for a financially-desperate state government, California Governor Arnold Schwarzenegger plans to sell 24 state buildings, including the Earl Warren Building in San Francisco, headquarters for the California Supreme Court, and then rent them back from the new owners.
However, such desperate moves by states, including the selling off of their turnpike systems and state buildings — with parks maybe next on the auction block — is not enough to forestall bankruptcy. Unlike the federal government, which can print as much cash as it likes and needs, states do not have that luxury. However, given the imminent collapse of the national economy, some states may decide to print their own currency, an act that would lead to the dissolution of the present 50-state union.
As far as bank accounts are concerned, our source recommended avoiding large national and regional banks that have a high percentage of toxic assets, especially in the commercial real estate area. The next major bust, after the residential real estate plunge, will be commercial real estate, where values of buildings and shopping centers have been halved. Our source sees smaller, state-based banks, as safer for account holders. Also, as more and more large shopping malls begin to close across the country, the unemployment numbers will also skyrocket.
WMR was also informed that President Obama will not seize the bully pulpit and level with the American people about who and what caused the present economic crisis. “Obama is subservient to his teleprompter,” the White House insider source said, “if he’d scrap the teleprompter and speak directly to the American people, he might help things, but right now, he’s a disaster.”