But most US states and cities cannot balance their budgets. Decades of gross mismanagement and corruption have left them with only one choice: To cut their budgets to the bone and pray for a miracle. And that's precisely what they're doing right now: States and cities are laying off police officers en masse. They're putting prisoners back on the street because there's not enough money to house them. Philadelphia, Baltimore, Sacramento and many other cities are laying off firefighters and emergency medical personnel, shutting down firehouses. Many states, including New York and New Jersey, have even refused to pay their pension funds! Governor Chris Christie slashed New Jersey's budget by 26%. He laid off thousands of teachers, fired 1,300 state workers, and drastically reduced funding to cities and counties. Illinois recently raised income taxes 67% and it's still not enough to solve its deficit nightmare. Also in Illinois, pharmacies have closed because the state failed to make its required Medicaid payments, and state employees are being evicted from their offices for nonpayment of rent!
Arizona is so desperate, it SOLD its state capitol, Supreme Court building and legislative chambers and now leases the buildings from their new owner. As a result, even the New York Times recently warned that, for the first time since the 1930s, we're likely to see US states default on their debts! The first major state or municipal defaults could explode into the headlines any day now.
On 60 Minutes, analyst Meredith Whitney, who accurately predicted the global credit crunch, predicted that up to 100 MAJOR American cities are likely to go bust THIS YEAR!
The just-described crises are likely to trigger a second wave of major bank failures from coast to coast
The likelihood of this new banking crisis is so explosive, Washington is doing everything in its power to keep it under wraps. It's so hush-hush, the Treasury has deliberately spread blatant disinformation about the strength of our banks. Time after time, Treasury Secretary Timothy Geithner and his associates have announced that US banks are "out of the woods" and "gaining strength."
The truth is, however, that the FDIC has a list of banks that are on the brink, and that list is growing by leaps and bounds. However, the FDIC refuses to reveal the names of those banks. Those names are THE best kept secret in the financial world. Insiders, however, have told Martin Weiss that they include Bank of America, Citibank, Wells Fargo, SunTrust, Regions Bank, and Capital One. Altogether, more than 2,000 US banks and thrifts are approaching insolvency.
And now, with mortgage defaults still soaring, and with Congress in no mood to bail out the banks a second time, many of those banks are vulnerable to the next phase of this crisis.
This is dead serious. Why? Because if your bank fails, even if it's bailed out or taken over by the FDIC, you could miss out on promised interest income. Plus, you could also lose access to your lines of credit, and suffer other serious expenses and inconveniences. Worse: If you own the bank's stocks, bonds, or debentures, or if you have deposits not insured by the FDIC, you could suffer substantial losses.
What does all this mean for the US stock market?
First let's summarize the circumstances we've just described:
- Washington's $14 trillion debt and $1.7 trillion deficit is on the verge of imploding,
- States like California, Illinois, New Jersey and New York are nearly in financial ruin,
- The entire housing and construction industry is locked in the savage jaws of a killer real estate depression,
- More than 2,000 banks vulnerable to this crisis ...
- The US Federal Reserve is flooding the world with newly created dollars, ...
- Leaders all around the globe are demanding that the dollar be replaced as the world's reserve currency ...
Nobody knows for sure which straw will break the camel's back. It could be another explosive revolution in the Middle East. It could be the sudden default of a major state or city. It could be the announcement that the dollar has been replaced as the world's reserve currency. But the camel's back will, in all likelihood, soon be broken.