Municipals Downgraded

Sunday April 19, 2009

Business Week reports that on April 2 Moody's slapped a negative outlook on all 52,000 cities, counties, and school districts that make up the muni market. "Few if any local governments well be entirely immune to the widespread economic downturn."  Moody's adds that property tax income is down, financing options are limited, but demand for services are up. 

Optimism peaked in early 2004 for local governments. Since then the market has turned decidedly bearish. Longer term readers are aware I have long referred to the municipal bond market as the 'real' bond market. It is not manipulated by the FED and each issue must stand on its own. IN 2006 prices slipped under the 200 week MA and have stayed there since. LIke gold, hmmm, prices are struggling to come back to their 2008 levels. In this case those are lows for gold they were highs. 

Governor Rick Perry's comments on secession are of course being dismissed cited as historically inaccurate. That misses the point. How long will healthy states be willing to support the much much weaker states of the north?

An alert reader sent us this map from Slate. This is the point Perry's critics are missing. The population is already massing in protest. What will they do when they realize they are working and the already 13% unemployed in Michigan are not, but southern states are being asked to fund Federal Unemployment?

Comments

[Normand]

What would happen if there was 13% unemployment in one part of the country and much less in Texas?

If the economy was left alone, so it could solve the problem by itself, the extra (unemployed) manpower would move to Texas (or try to create jobs in their own state) instead of waiting for government to subsidize the unemployed. Subsidizing individuals for too long of a time is probably not a better idea than subsidizing businesses for too long of a time.

[Dennis Elam]

Indeed, an observation about the long term embedded unemployment in Europe is that no one feels they have to move to change their situation. Since the govt continues to pay the unemployed, they stay that way, as I said in a recent column, their new job is being unemployed. However the labor force here is much more fluid and hence the unemployment rate has stayed much lower as people move to find new jobs.