Pontiac Michigan – A Canary In The Coal Mine

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When the canary dies, the miner who lingers is next! - Photo Credit to afagen via flickr.

The phrase “canary in the coal mine” refers to the old practice of mining workers taking canaries into mine tunnels with them. If poisonous gases such as methane or carbon monoxide leaked into the mine-shaft, the gases would kill the canary before killing the miners.

The canary was basically and indicator of things to come if the miners didn’t pay attention and get back to the surface.  The phrase is well known in America today but the wisdom of the concept is lost on most people.

Such will be the case with the situation in Pontiac, MI.  According to the Detroit Free Press Pontiac is essentially in bankruptcy and waiting for county and state bail out.

So how bad is it in Pontiac, well according to the article here are a few facts on the ground…

  • If  the city were to lay off every current employee, the city still would be $1.5 million in deficit
  • The city basically laid off the police department dispatchers and dumped the responsibility on the county sheriff
  • The city has had a 21.4% decline in taxable property values last year
  • They have cut the Mayor’s and City Council’s pay to zero
  • Under a new state law Pontiac is technically in receivership

Sounds bad, but hey it is just Pontiac Michigan right?  I mean Michigan isn’t exactly the land of opportunity and Detroit and the other motor cities have been in decline for a long time anyway right?

Sadly that will be the attitude of the average Joe.  Such is the short sightedness of a society who doesn’t care about much unless it changes the temperature of the water in the pool that they owe more money on then they have in their kid’s college fund.  As I reported back in December of 2011 in my article 7 Deadly Cracks, over 100 cities in the US are currently near bankruptcy.  Pontiac is simply the first of the mix to go over the edge.  At the end of the article there is a statement almost presented as an afterthought, it says,

The city’s last resort? A default on city bonds, which is all but unthinkable because it would affect county and state bond ratings, Jukowski said.

“I think the powers that be would move heaven and earth to avoid that,” he said.

Sadly this is the part that is supposed to tell us, everything is going to be fine, it should instead be the most alarming.  Why?  Basically the stance from the city is, “yea we are screwed, we can’t pay our bills, we would never be able to cover our bonds at this point but since we would screw over the county and state if that happens they have to bail us out”.  If that doesn’t raise your hackles, drink some coffee and read it again!  If it still doesn’t up your blood pressure a few points you should just return to counting your accrued credit card points!

The reality is Jukowski is probably right, Michigan and Oakland County may very well have to bail them out.  Then just like the banks lined up for TARP look for cities in similar situations to do the same.  Of course since the majority of US States are near bankruptcy such bailouts can’t go on for very long until said states will have to either finally default on their debts or play the same game with the Federal Government.   Turning to the federal government, it is on course to be in debt for over 20 Trillion Dollars by 2020 at which point debt will exceed 90% of our total GDP, so how long can that game go on?  The answer is, not very long.

Pontiac is the canary in the coal mine, the defaults are coming.  Of course government and media will down play the severity of the situation as other cities enter similar cycles.  They will ensure the public that our sugar daddy, Uncle Scam, has it all under control and that it all will be okay.  Older citizens who traditionally move their wealth to fixed income bonds will be the first to take it on the chin with a loss to their short term returns.

Big investors in municipal bonds are not stupid and they will dump them which of course will hurt all those so called “safe bond funds” in 401Ks and IRAs as well.   Of course this is the minor part of the story, by the time mainstream America faces this reality, we will be on our way to a full scale re-basing of a collapsed dollar.

Many will see that as alarmism, but if the canary dies, the best course of action is head for the surface.

3 comments to Pontiac Michigan – A Canary In The Coal Mine

August 2014
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