COST TO PROTECT AGAINST ILLINOIS DEFAULT RISING
The spread on Credit Default Swaps, which is the cost associated with owning protection against a default, for Illinois bonds spiked to a record high according to Bloomberg. The state faces a budget gap to the tune of $13 billion after state lawmakers passed a provisional $25.9 billion spending plan for the 2011 fiscal year that begins July 1.
The price of a five-year credit-default swap to insure Illinois obligations rose 7 basis points to 309.1 basis points today, or $309,100 to protect $10 million of debt, from 302.2 basis points yesterday in New York, according to CMA DataVision, a data provider owned by CME Group Inc. The gain makes insuring bonds from the fifth-most populous state more expensive than covering debt from any other municipal issuer.
According to CMA, Illinois has one of the the highest cumulative default probabilities (CPD) of 22.9 percent, ahead of the State of California and behind indebted countries such as Greece and Venezuela.
TPC: This link (and link within a link for the raw data) explains IL’s situation perfectly. We as a society egregiously overpay municipal workers.
http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Does-Neil-C-Codell-deserve-a-26-million-pension–96402639.html
California’s budget problems make the most news because it is the biggest state with the biggest budget, already has close to the highest income taxes, but many other states have much bigger shortfalls as a percent of total budget.
California’s shortfall is about 9%. Shortfalls in other states: Nevada 56%, Illinois 36%, Arizona 35%, North Carolina 30%, Minnesota 26%. Among the biggest states all have a bigger % shortfall than California. Florida 22%, New York 16%, Texas 13%.
At $13 billion, Illinois has a biggest absolute budget shortfall than California, but Illinois can easily fix the shortfall overnight simply by adopting California’s income tax tables. Good-bye 3% flat tax, hello 6% average tax and 9%+ tax for all earning six-figures or more. Bye-bye budget problem.
California’s budget problems make the most news because it is the biggest state with the biggest budget, already has close to the highest income taxes, but many other states have much bigger shortfalls as a percent of total budget.
California’s shortfall is about 9%. Shortfalls in other states: Nevada 56%, Illinois 36%, Arizona 35%, North Carolina 30%, Minnesota 26%. Among the biggest states all have a bigger % shortfall than California. Florida 22%, New York 16%, Texas 13%.
At $13 billion, Illinois has a bigger absolute budget shortfall than California, but Illinois can easily fix the shortfall overnight simply by adopting California’s income tax tables. Good-bye 3% flat tax, hello 6% average tax and 9%+ tax for all earning six-figures or more. Bye-bye budget problem.
Perhaps massive income tax hikes seem like a solution if using a calculator rather than reason. Try it in Illinois and the trickle of graduating kids leaving the state will become a stampede as their parents join them, till the metro teat-sucking minorities on a combination of welfare, state, and federal jobs are all that is left. The moochers are all that is left behind when the producers set up new homes and businesses elsewhere.