Thursday, February 18, 2010

This Is a Bad Sign For Our System - the Irreversible Debt Spiral

Hawaii, North Carolina and apparently soon New York will be delaying the disbursement of State tax refunds.  Here's the article from  LINK.

It's a really bad sign when a debtor goes delinquent on money owed.  In this case, technically the State is indebted to the Taxpayer and it looks like the Taxpayer will now have to stand in line to get paid.  When a business or individual starts delaying payement of their bills, it's usually the first sign of financial stress leading to bankruptcy.  To be sure, there is always the possibility that a wounded debtor may recover and eventually catch up on bills and debt repayment. But in the case of most States AND the Federal Government, spending budgets keep ballooning while tax revenues keep dropping - not the signal of recovery.  In the junk bond business we called bonds issued by companies in this situation "IDS" bonds:  Irreversible Debt Spiral bonds.

It's bad enough that the Government gets to use the float on taxes withheld from paychecks until tax returns are filed and processed. But to be quite frank, I'm not sure what the difference would be at this point between what these States are doing and a check kiting or Ponzi scheme.  Anyone who sees news like this and still believes that Greece/Spain/Europe is in worse shape than the U.S. needs to either lay off the Prozac or stop doing bong hits.


  1. Headlines from today's local (Honolulu Advertiser) front page:

    UH Sports debt may hit $10.1M

    Laboring over tax options

    Lawmakers may hike excise tax

    Geez, I have a funny feeling we are about to get ass raped with high taxes and bloated fees.

  2. Ya but look on the bright side: you got great weather, cool Buds, tasty waves and Hula Girls!!!

  3. Agree on all four bright side points!

    I always liked that t-shirt that said "Another Shitty Day in Paradise".