Monadnock School Taxpayers Association News

Europe’s policy panic is feeding another financial panic.

Anyone who thought that last week’s IMF-EU bailout would calm markets has had a rude awakening this week, especially after yesterday’s global selloff in stocks. It rarely gets uglier than a 3.6% one-day fall in the Dow and 4.1% on the Nasdaq.

Even more ominous is the return of fear in the credit markets, with interbank risk spreads hitting their widest levels since spring 2009. Investors are fleeing riskier assets and moving back to the relative safety of the dollar and U.S. Treasurys, which means less credit available to finance business and risk-taking. The plunge of the euro has exacerbated this flight to the greenback, and the rapid exchange-rate movements of recent weeks are always more disruptive to investment decisions and capital flows than conventional economic wisdom cares to admit.

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We have a ruinous collaboration of elected officials and unionized public workers.

The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public-sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.

The political backlash has energized the tea party activists, put incumbents at risk in both parties, and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year, the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities, a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the budget gap is more than 30%.

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Brattleboro Reformer

HINSDALE, N.H. — A Hinsdale committee made up of school officials and town residents unanimously recommended to withdraw from the School Administrative Unit 38 during a Wednesday night public hearing.

The Hinsdale SAU Withdrawal Committee supported leaving Unit 38 to give the district more authority over their finances and provide more direct services to students. The decision came after approximately 20 meetings since March 2009 to explore the numerous educational benefits by forming a separate Hinsdale district.

Withdrawing from the SAU would allow for local school leaders to work directly with the town on matters of mutual interest, reduce the complexity of the current administrative structure and allow full autonomy in decision-making by Hinsdale voters.

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Expect the greenback to remain the world’s reserve currency, but that won’t be a sign of U.S. strength.

For all the talk about the problems of Greece and their implications for the euro zone, there is another currency that presents equally profound problems: the U.S. dollar. The dollar is, as everyone knows, the world’s reserve currency, and it widely seen as a boon and an anchor for the emerging global economic system. It is also the only thing standing between the United States and its own moment of reckoning, and that is not a good thing.

The evolution of the dollar as the world’s reserve currency tracked the emergence of the U.S. as a dominant power. The Bretton Woods agreement of 1944 designated the dollar as the currency of last resort because the U.S. accounted for a significant percentage of world manufacturing and held much of the world’s gold in Fort Knox and other depositories. The British at first demurred but were forced to accept the primacy of the greenback in 1946 when faced with a choice between bowing to the dollar or defaulting on their loans because the Americans would not lend to them otherwise.

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Fannie and Freddie lose it all for you.

Fannie Mae yesterday announced its 11th consecutive quarterly loss—$11.5 billion—and asked for another $8.4 billion in taxpayer assistance. When it comes to losing money, nobody does it better than this government-created mortgage investor.

Fannie Mae is the Cal Ripken of bad real-estate deals, reliably pouring taxpayer money into the housing market. Granted, Fannie faces tough competition from its toxic twin, Freddie Mac, which last week announced its own request for another $10.6 billion from taxpayers.

Once the checks from Treasury clear, Fan and Fred will have consumed a combined $145 billion in taxpayer cash, and the end is nowhere in sight. Both companies warned of further losses triggering more government assistance, which is now unlimited after a 2009 Treasury decision.

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The EU’s bailout postpones the day of fiscal reckoning.

A trillion dollars is a lot of money, even these days, and the European Union has demonstrated that a check for €750 billion ($972 billion) can produce a rally in European debt markets and global equities. Too bad the larger price for Sunday night’s “shock and awe” intervention is likely to be paid in the further erosion of Europe’s fiscal and monetary credibility.

French Finance Minister Christine Lagarde noted Monday’s exuberant market reaction with satisfaction, saying that the “message had gotten through” that Euroland would defend its currency. Yes, creditors no doubt love that governments have guaranteed their high-yield loans to Greece, Portugal, Spain and any other profligate government that comes under bond-market siege. What investor doesn’t like a risk-free loan that pays 9%?

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In Illinois, GOP legislators side with teachers unions.

In the 19th century, Illinois was the land of Lincoln. In the 20th, it was the birthplace of Ronald Reagan. In the 21st, Illinois has given us a new breed of Republican: Roger Eddy.

Mr. Eddy is what they call a downstater, an assemblyman who serves an east-central Illinois district hugging the Indiana border. His day job turns out to be in government as well, as a public schools superintendent.

Last week Mr. Eddy became the face of the Republican failure to get a voucher bill through the Illinois assembly. The bill had passed the Senate. Yet despite being pushed by a remarkable coalition involving fellow Republicans, a free-market state think tank, and a prominent African-American leader, only 25 Republicans in the House voted yes. That was 12 votes short. Mr. Eddy was one of 23 Republicans who killed it by voting no.

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Just when it seemed that the epic financial drama of the early 21st century was coming to a close, the fates intervened. Suddenly, it was Sunday night again, and officials were racing to craft a rescue plan as markets opened in Asia. One big difference: This time the setting was Brussels and Frankfurt, not Washington and New York. Another: This time it was the creditworthiness of governments, not banks, that provided the tension.

In Act One, the U.S. housing bubble bursts, and we learn that much of American finance was resting on the simple, but wrong, assumptions that house prices would never fall across the country and that modern finance was spreading risk rather than concentrating it. In Act Two, the U.S. government responds, but hesitantly.

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It took the Dow Jones Industrial Average 62 long, grinding years to close above 582.69 for the first time. On Thursday, the Dow plunged by 582.69 points in less than 420 seconds.

The market’s terrifying drop was more than a technical trading glitch. It was a warning that the U.S. economy is playing a dangerous game. After all the massive bailouts, the federal debt is exploding.

Overall U.S. government debt now stands at 92.6% of projected 2010 gross domestic product, according to the International Monetary Fund.

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Wall Street Journal

California’s public funds are assuming unlikely rates of return.

The time-bomb that is public-pension obligations keeps ticking louder and louder. Eventually someone will have to notice.

This month, Stanford’s Institute for Economic Policy Research released a study suggesting a more than $500 billion unfunded liability for California’s three biggest pension funds—Calpers, Calstrs and the University of California Retirement System. The shortfall is about six times the size of this year’s California state budget and seven times more than the outstanding voter-approved general obligations bonds.

The pension funds responsible for the time bombs denounced the report. Calstrs CEO Jack Ehnes declared at a board meeting that “most people would give [this study] a letter grade of ‘F’ for quality” but “since it bears the brand of Stanford, it clearly ripples out there quite a bit.” He called its assumptions “faulty,” its research “shoddy” and its conclusions “political.” Calpers chief Joseph Dear wrote in the San Francisco Chronicle that the study is “fundamentally flawed” because it “uses a controversial method that is out of step with governmental accounting standards.”

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