This Crisis – the Great Unwinding – has a distinctive characteristic. There are occasional panic periods as when AIG was taken over and Lehman Brothers collapsed, but generally there is a stately stream of failures and bankruptcies and other kinds of … loss.
This is not a crisis so much as an amputation of the social body.
The Detroit Free Press notes the public school system in that city faces bankruptcy:
DPS may wind up in bankruptcy
Strategies to solve $259-million deficit are few
The Detroit Public Schools may have no choice but to file for Chapter 9 bankruptcy, which would make it the first big-city school district to use bankruptcy court to avoid paying millions to vendors, employees and bondholders, experts said Thursday.
DPS Emergency Financial Manager Robert Bobb is continuing to consider the option and met Thursday with retired U.S. Bankruptcy Judge Ray Reynolds Graves.
Jim McTevia of McTevia & Associates of Bingham Farms, which works with companies with serious financial troubles, said DPS has three choices to solve its projected $259-million budget deficit: raise more money, cut costs or declare bankruptcy.
More revenues are extremely unlikely, given DPS’s projected enrollment decline of 12,000 students and anticipated state funding cuts. McTevia estimated DPS would have to cut its costs as much as 50%, an almost impossible feat given that more than 80% of most school district costs are salaries and benefits mandated by contracts.
Bobb, a state appointee who took charge of the DPS budget in March, was not able to balance the 2009-10 budget, which totals about $1.2 billion and calls for $21.8 million in debt service payments on bonds sold to eliminate past deficits.
Notice that a large part of the DPS’s deficit is interest payments on debts, these debts being loans from the financial sector: $21.8 million.
A topic far too large to address here and now is the ability of any agency or service to provide for its customers or community when such a large part of expenses is basically a non- producing tariff? The total DPS deficit is $259- million; interest on debt is almost 10% of that total.
This lurch toward bankruptcy is being repeated across the country. Matters are equally dire in California, where venders and employees are being paid with scrip – if they are being paid at all!
A large and growing part of the US federal deficit is debt service; payments of production to lenders, mostly financial institution in this country but also large (central) banks overseas.
The background if this crisis is found in failing social structures, increasing marginal costs relating to maintaining the ‘sprawl’ infrastructure and simple bad management – excessive contract/entitlement cost growth. Contributing is the placing of productive activity – such as educating our children – as the servant of lending and money creation.
People expect Obama to cast some more borrowed money at the problem; but doing so does not address the issue of money creation and the burden of debt which is accelerated by the process of borrowing.
Most people don’t know that money is lent into existance by the fact of banks making loans. In this process, the loans represent capital or principal that forms the supply of money. Any interest must be removed from some other principal amount that is borrowed by others – for some other productive endeavor.
Call this what you like – stupidity comes to mind – but continuing this process leads to all becoming bankrupt or none having any money. Being without money for some might be a state of grace, but the effects on commerce would be hard and the effective loss of money availability has hit all organizations which have also had to deal with increased marginal, incremental and embedded costs of petroleum.
At some point, the establishment needs to examine reforming the monetary system and rebalance toward actual production rather than easy, non- effort interest income for a handful of financiers.