Monday, August 8, 2011

Americas Credit Downgrade and Municipal Risk

Municipal Bonds at greatest Risk of DefaultWhen Standard and Poors downgraded the United States they did not just teach the Washington spendthrifts a lesson, they sent a message to us all. This message started in Washington and now the effects of the Capitol's gridlock will come home to roost.

Bond King Bill Gross of Pimco Investments has indicated that the AA+ downgrade will likely push rates higher across the entire bond market, including state and municipal bonds. We here in Milford have 300M in exposure and a slight 1% increase in our interest rate can induce a hardship.

About a month ago I quoted Meredith Whitney of the Whitney Advisory Group. Meredith is one of those unique individuals who in her words "has to be right" and she spent considerable time studying the municipal bond market. Meredith concluded about a month ago that the entire "Municipal Bond Market" is set to experience a painful correction.

Wall street, who usually trades on the trends that exist six month ahead, is telling us that something is very wrong and the economic horizon is now set ablaze with bright orange flames.

My predictions on Milford and its looming debt crisis is based on Game Theory as calculated by the economic figures set forth in the CAFRs. Currently Milford has solutions, but neither candidate for mayor has expressed a willingness to embrace those solutions or even ask what needs to be done. We are at a cross roads, one that is not good, one that ignores the very reality of rational decision making and the nature of default based politics.

In 2007, when I ran for state Rep. I set out to sound the alarm on a One Billion dollar state shortfall. Local Republicans and Local Democrats laughed and mocked me for even suggesting something so outrageous and "off the wall." Much to their surprise I was wrong because the problem was 3.2 Billion not One. Now the state is shutting down as mass layoffs further threaten the state economy.

Milford has one shot to fix this coming mass default, one that could rise to as much as One Billion Dollars locally!! It is this year, and it involves something called the "Spike theory of municipal Change." I have all of the details on this rigorous program and how it works. However, our candidates both have expressed they will "wing it" with their unproven ideas. I highly advise and beg of our next Mayor to please not "wing it" this is no time to experiment with our futures.

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