State & Local Government Bailouts Coming Soon

[r3volution 3.0]

To be clear, I have no news on this, this is just my prediction.

Total state and local spending this year was projected at around $4 trillion. State and local governments largely fund themselves with conventional taxes, with some borrowing, and no printing. On the conservative assumptions that revenues decline 50%, spending increases 10%, and the problem lasts for 6 months, that would result in a shortfall of $1.2 trillion over the next 6 months. That's going to be subsidized directly by the Fed, via bond purchases or some other method of lowering their borrowing costs, or indirectly by the Fed, via an overt federal bailout, financed by treasury sales, themselves bought by the Fed.

This figure should be added to estimates for the federal deficit or Fed balance sheet.

Feel free to use this as an ongoing thread for incoming news about the financial difficulties of state and local governments.

 

[Warlord]

The mother of all bailouts no doubt about it.

 

[Warlord]

Almost overnight, New York City's booming economy sent into chaos

https://www.politico.com/states/new...citys-booming-economy-sent-into-chaos-1267952

CA in lockdown too. Not good for the economy.

 

[devil21]

Local county government has already announced cuts to services.


Headline on CNBC just now: Fed to add municipal bonds to its BUY ALL TEH THINGZ programs.

 

[pmbug]

To be clear, I have no news on this, ...

I do.

A Senate bill to be introduced Friday would allow the Federal Reserve to purchase municipal debt, in an effort to ease the economic strain of the coronavirus pandemic on state and local governments.

The measure from Senator Bob Menendez, a New Jersey Democrat on the Senate Banking Committee, would amend the Federal Reserve Act to allow the Fed to buy municipal bonds under “unusual and exigent circumstances.” The rule would be triggered by events like the rapid spread of a virus, other health emergencies or crises.

“States and localities are on the front lines in the fight against COVID-19 and need assistance from the federal government to be able to finance the increasing costs of the response to this health emergency,” Menendez said in a statement. “The Municipal Bonds Emergency Relief Act would do that by allowing the Federal Reserve to provide support to state and local governments for this crisis and similar future emergencies.”
...

https://www.bloomberg.com/news/arti...l-debt-under-new-senate-proposal?srnd=premium

 

[oyarde]

Ya , I will not be buying municipal bonds so I guess the Fed will.

 

[Krugminator2]

I don't know if shutting everything down or not is a good decision.

But I strongly suspect the governor of California didn't think through the economic consequences of this. The amount of tax revenue these local governments lose this year will be enormous. The loss of stock market value will devastate pensions. The federal government can't bailout every state and local government.

Maybe this prevents the Spanish Flu from happening. But maybe the economic fall out kills far more than the Coronavirus.

 

[devil21]

The takeaway from the Fed's new Buy All Teh Thingz programs is that the Fed will directly finance the remaining Agenda 2030 programs (construction, mainly) since most cities can't support the taxes required to finance them anymore because of shutdowns and also financing the associated A2030 companies (electric cars, etc) via buying their corporate debt outright, since their stock values are plummeting and would otherwise be exposed as the insolvent zombie companies that they are.