This is very bad news, possible the domino that sets the whole thing off.

Sell Alert: Get Rid Of Low Quality Muni Bonds

Some people have nightmares about being chased by runaway trains, vicious animals or bad guys. Mine is daytime nightmare: Being chased by molten lava.

The lava in this case is the red-hot viscous bad news still emanating from the municipal bond market.

http://www.forbes.com/sites/investor/2013/05/22/sell-alert-get-rid-of-low-quality-muni-bonds/

 

Back in the old days, cities, counties and states would collect taxes, and those taxes would go into accounts, and when there was enough money in the account, they would build the bridge, or school, or park that the community needed.

But someone, in New York, in 1812 decided they needed a canal, and since they didn’t have the money, they borrowed it, by issuing bonds, and promising payback through future property taxes. The problem with this, is not only is a significant amount of the money going to interest payments, but the property taxes that should be accumulating to go to the next project, are already spent. It’s a vicious cycle, and is next to impossible to get out of without bankruptcy. Someone will eventually take it in the chin.

By 1840, almost 2000 US cities were carrying $25 million in debt, which was a substantial amount. By 1870, there was so much debt, that things began to collapse, which created a panic and the 1873 depression.

Now, our country is at the 1870 levels of debt, and all it will take is one large bank collapse, or major bond payment lapse. And this is what is happening with Detroit. Basically, low quality muni bonds are bonds issued by cities like Detroit who have a higher risk of not keeping up with their bond payments. Factor in our govts gambling in the LIBOR based derivatives market, and overnight swaps, and some estimated put muni debt around $300 trillion.

Don’t be fooled. Nearly every city in the country is drowning in debt. Some cities are so bad, they are issuing bond, to pay for the bonds they already have on the books. Detroit has done this recently.

Loss in confidence in the bond market, is essentially a run on the banks.

If these cities drowning in debt can’t sell bonds, to fund their debts, let alone build bridges, schools, etc, the will collapse. Govt employees will not get paid, and things get ugly real quick.

Since this news was posted about an hour ago, the dow has lost nearly 100 pts, and will continue to go down….

All I can say, is pack the BOB. It about to hit the fan.