So a few days ago I called Pontiac Michigan a “Canary in the Coal Mine“, a sign of things to come, just the beginning of city level defaults that would eventually lead to state defaults.
Today I have more news on that front for you. Another city in a lot of trouble is Harrisburg, PA. Harrisburg is a very different place than Pontiac but subject to the same laws of mathematics. Basically when you spend more than you have for long enough eventually you are screwed.
Harrisburg has been teetering on financial collapse for quite a while and has been recently attempting to stave off creditors with the threat of bankruptcy. In short asking for better payment terms, reducing debt by negotiation with the concept of “if you work with us you will get what we can give you, if you work against us you will get little or nothing if we file bankruptcy”. To me this actually sounds reasonable, any company would do this, dealing with employees, suppliers or debt holders.
Of course the government believes they know better and wants to make bankruptcy hurt a city more than it already does, according to a report by WHTM ABC27, a new law was just passed that states…
“Small to medium-sized cities that are deemed by the state to be financially distressed would lose all state aid if they file for bankruptcy protection before July of next year.”
So basically a city like Harrisburg would loose state funding at the time when they most needed it. This of course will embolden their creditors who will make more demands which may very well push the city into bankruptcy even more quickly.
I want to be clear Harrisburg isn’t as bad off as Pontiac, not yet anyway, but here again we see another city on the verge of economic collapse. The collapse of Harrisburg’s finances is coming, the law MIGHT, stave it off until 2012 but you can’t prevent people from running out of money with a law, if you could we would just outlaw poverty and eliminate it as a problem. The sad and scary thing is out there right now in the tiny brain of a politician that thought is being seriously considered!
Now for something far more sobering and concerning. I have profiled two cities this week in different stages of bankruptcy, I could continue to profile one a week and not run out of cities to profile for over two years even if no additional cities were added to the current list.
Sooner or later this will drag us into stage to of the double dip recession that is more accurately a depression. It may not be this year or next year but if you have money in stocks and bonds, keep a very close eye on this situation. Protect your investments with stop losses and/or covered shorts. Do not keep 100% of your money in stocks and bonds, do not keep 100% of your money in precious metals or US dollars. Practice true diversity and please be prepared to move our of your exposed positions long before the sheep figure out it is time for “Slaughter House Two” to air.