Today, I want to run a few thoughts by you courtesy of John Mauldin.  In his recent weekly newsletter, he makes a number of points I have made here over the past few weeks and comes to a similar conclusion about the weakness of recovery and the likelihood of a double dip recession.
John Mauldin, Best-Selling [...]

I have really started to dislike municipal bonds as an asset class. They have seen a huge rally along with almost every other financial asset but the underlying fundamentals are weak because of financial distress at states and municipalities.
Last week, I wrote a first piece on this topic, based on some work by Philip Greenspun [...]

Bond insurer Ambac Financial has warned bankruptcy is a distinct possibility, sending its shares plummeting more than 30% today.
What is intriguing about this pending bankruptcy is how this company escaped bankruptcy in 2008, was downgraded continually in 2009, yet just reported billions in profit 5 days ago. Now it warns of bankruptcy? 
This story also [...]

Why aren’t more municipal bonds being downgraded by the ratings agencies Fitch, Moody’s and S&P?  If you look at sovereign debt in revenue-constrained countries like Greece, Portugal or Ireland, the ratings agencies are issuing warnings. 
But, states and municipalities are suffering from the same revenue constraints. Tax revenues have plunged. Governments have shut down services [...]

This came in overnight via the FT.  Most of the shortfall in revenue is made up through spending cuts.  Below are the relevant paragraphs:
The agreement involves cutting nearly $6bn from schools and community colleges and close to $3bn from the state’s university system, although Mr Schwarzenegger said education cuts would be fully “refunded”.
An additional $1.3bn [...]

This can’t be good.

A group of the biggest U.S. banks said they would stop accepting California’s IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.
The development is the latest twist in California’s struggle to deal with the effects of the recession. After state leaders failed to agree on [...]

This is effectively bankruptcy. Bloomberg reports.
California is poised to begin its new fiscal year tomorrow without a plan in place to close a $24 billion deficit as the state prepares to conserve cash by issuing IOUs to vendors who are owed money.
Republican Governor Arnold Schwarzenegger and Democrats who control both chambers of the Legislature are [...]

I am re-posting this February article because it is clear that many of the policy dilemmas Barack Obama is now facing on the economy were wholly predictable. In this post and another from January, I argued that it was better to have zero stimulus than the half-measure proposed by Obama’s economic team. By not adding enough stimulus, Obama has discredited it as a policy tool and made it seem that stimulus is ineffective, something Alan Greenspan argues in an FT op-ed.

Moreover, it was equally obvious in January that California, at a minimum, was going to collapse economically, and cut back on spending, further reducing any positive effects of stimulus. Yet, somehow, California’s request for aid has been rejected, increasing the likelihood of a worst-case economic scenario in that state. Incongruously, big banks have received hundreds of billions of dollars in aid. Why the differential treatment?

If you are looking for change from the status quo, I imagine you might be disappointed at where things are headed. Perhaps the Obama Administration is looking to effect gradual change, but I am of the view that many policy decisions have a way of ossifying and becoming permanent – you get one shot and that is it. Paul Krugman opines that there is not enough audacity in this new administration.

If you want change, you will need to demand it as Robert Reich has suggested. Without a push, Barack Obama’s economic policy team may not deliver the change you want.

Below is the original article. Enjoy.

Here’s a good segment from CNBC with an interview from two city mayors, the mayor of El Centro, CA that has 26.9% unemployment, the highest in the nation, and the mayor of Flint, MI, which is imploding due to the decline in the U.S. car industry.

 
Interestingly, CNBC has another article on its website showing [...]

It’s not just California.  Tax revenue is falling everywhere.
State income-tax revenue fell 26% in the first four months of 2009 compared to the same period last year, according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government.
The report, conducted by the public-policy research arm of the State University of New [...]