- Chinese Manufacturers Are Scrambling To Replace Workers With Robots As Wages Soar
Tepid wage growth has been frustrating Americans for years. But if trends in China’s manufacturing sector have any bearing on the US, there’s an upside to stagnant pay: Workers get to keep their jobs – for now, at least.
In China – where real wages have doubled in the past decade – the opposite is true: Manufacturers, squeezed by rising labor costs and a paucity of skilled workers, are fueling an unprecedented boon in the adoption of automated technologies to cut down on the number of workers needed on factory floors, according to the latest findings of the China Employer-Employee Survey.
Ironically, the Communist Party’s willingness to support unprofitable businesses is compounding problems for Chinese workers, as many manufacturers are barely profitable to begin with.
As Bloomberg explains, China is no longer the cheap labor haven it once was.
“Monthly manufacturing wages reached 4,126 yuan at the end of 2015, equal to those in Brazil but much higher than Mexico, Thailand, Malaysia, Vietnam, and India.
At the same time, many firms are relying on government subsidies, while barely eking out profits or even losing money, according to the study released June 20. “Time is running out fast for Chinese manufacturers to adapt,” says Albert Park, head of the survey’s international committee and a labor economist at The Hong Kong University of Science and Technology.
The study canvassed more than 1,200 companies and 11,300 workers in Guangdong, China’s biggest manufacturing province, and Hubei, a major industrial base in central China. Some 26 percent of workers left their jobs annually in Guangdong and that turnover rate was even higher for younger workers, about 37 percent for employees below 28."
In a viral video published back in April, the People’s Daily provided a glimpse into the rapidly approaching future of China's labor force: The video, also released by the SCMP, shows hundreds of round Hikvision robots, each roughly the size of a seat cushion, swiveling across the floor of the large warehouse in Hangzhou. A worker is seen feeding each robot with a package before the machines carry the parcels away to different areas around the sorting center. The robots sort more than 200,000 packages a day.
One factory owner explains to Bloomberg how he’s adding 40 robots to his workforce that will eventually allow him to reduce his human workforce by 25% or more.
“As he marches through a gritty factory that makes baby strollers and wheels, Hu Chengpeng says finding workers is his number one challenge these days. Turnover at the facility in Hanchuan in Hubei province in central China is running at 20 percent, even while wages have been growing by double digits for his 400-plus workers every year. “Labor costs are getting just too high,” he said.
All of which explains why Hu, 34, is embracing China’s robotics revolution. He has added 40 new robots, each costing 40,000 yuan ($5,850), this year to replace dozens of workers tasked with cutting plastic molding. Eventually the factory will use a quarter fewer workers than today, without having to reduce annual production, he said. Hu also said he plans to shift more production away from making simple components and towards producing higher-margin branded strollers.”
Engineers are rushing to replicate even the most basic advantages that humans have over robots. In a video published by Bloomberg, employees at San Francisco-based Autodesk explain how they’re designing software to enable robots to “see” their surroundings. The engineers say it will ameliorate safety issues that have been a barrier to wider adoption. Soon, they say, robots and humans will be able to work in closer proximity.
Luckily, robots still have a ways to go before they can "think" like humans, too.
- How To Make People Respect The Flag
Authored by Justin King via The Fifth Column News,
It’s the Fourth of July. The most American of days. If you left your home today or scrolled your social media accounts, you undoubtedly saw disrespect towards the American flag. It isn’t a new expression of speech, but it is certainly more widespread today than in years past. So the question arises: how can you make people respect the flag?
First, let’s look at what the flag represents. Is it possible those showing disrespect to the flag just need to be educated about the symbolism? In a book about the flag published by the House of Representatives, it says in relevant part, “the star is a symbol of the heavens and the divine goal to which man has aspired from time immemorial; the stripe is symbolic of the rays of light emanating from the sun.” The flag’s colors had no specific symbolism or meaning when the flag was adopted in 1777, however, the Great Seal of the United States did have meanings for those same colors. “The colors of the pales (the vertical stripes) are those used in the flag of the United States of America; White signifies purity and innocence, Red, hardiness & valour, and Blue, the color of the Chief (the broad band above the stripes) signifies vigilance, perseverance & justice.”
So there we have it: purity, innocence, hardiness, valour, vigilance, perseverance, and justice.
Do the actions committed under the flag today match this symbolism? Does a pure country run torture camps or turn a blind eye when its allies do? Does an innocent nation intentionally foster a civil war in which millions of civilians are killed or displaced for political and economic gain? Does a hardy country turn away those seeking help because it is too difficult? Does a valorous nation conduct a drone strike program in which 90% of those killed are “collateral damage”? Do vigilant citizens let the government run amok, or should they monitor government overreach the way the Founding Fathers intended? Does the country display the perseverance to forge ahead through danger and terror, or does it let the fear generated by a tiny minority of extremists control its foreign policy? Is there true justice when the nation has the largest inmate population on the planet and law enforcement kills an unarmed person 10% of the time they kill someone?
It’s time to face the horrid truth. Vast quantities of Americans no longer respect the American flag because the ideas it is meant to symbolize are lost. If you started reading this in hopes of restoring respect for the flag, it’s probably your fault. Blind respect for the flag accompanied by apathy as the things it represents are destroyed has rendered the flag meaningless. It has become nothing more than a sports team bumper sticker. It’s something to show what side you’re on and help you root for the home team, while simultaneously betraying everything it was supposed to stand for. If you read the litany above and found a way to force it out of your mind, you are the problem. It’s not the punk burning the flag. It’s you, the person who claims to respect it while supporting the actions above. The college kid with the lighter may be destroying a physical flag, but you destroyed the idea of it. Which is worse? Who is really unamerican?
Certainly, in the comments section under wherever this article is posted, someone will mention those who fought, bled, and died for the flag. I know more combat veterans than most. None have ever told me they fought for the flag or apple pie. When the bullets started flying, they fought for their friends. Those who were really hardcore fought for the mission. It should also be noted that, on the off chance someone knows a person who truly did fight and die for a piece of cloth, recently a teenager died because he mistakenly believed he could beat a train to the crossing. The point is: just because someone died for something they believed in doesn’t make it true. Rather than address the injustice of this soldier dying due to a mistake, you will attempt to politicize his death and allow more soldiers to die in the next war we shouldn’t be involved in.
When the flag was first hoisted, the country didn’t live up to the symbolism. Genocide, slavery, and injustice followed it everywhere it went as the nation spread from sea to shining sea. Even with that start, the symbolism as outlined was a goal worth pursuing. It was worth the fight. Now, when people ask for justice, the flag-waving American responds with the hashtag of #BlueLivesMatter. When refugees flee US bombs falling on a country ripped apart by a civil war instigated by the US, the country shows no valor or hardiness. It shows fear and hatred. Your blind obedience to the state and the refusal to think about the symbolism of the flag disrespected it long before the first drop of gasoline touched it. You more than disrespected it, you killed it. The person who considers themselves a good American torched the meaning of the flag when they stopped questioning the government the way the Founding Fathers intended and when they stopped aspiring to the symbolism.
If you want to restore respect for the American flag, it’s very simple. Make it something worthy of respect and stop treating it like a pom-pom at a football game.
- Paul Craig Roberts: "Once Only Blacks Were Enslaved, Now We All Are"
Authored by Paul Craig Roberts,
The 4th of July is upon us.
We will hear all sorts of patriotic BS about how wonderful we are and how thankful we are to our brave military which defends our liberty.
Not a word will be said about the destruction by the Bush and Obama regimes of the US Constitution, which once protected our liberty far better than any military action.
Not a word will be said about Washington’s 16 years of purely gratuitous war in the Middle East and North Africa that has destroyed in whole or part seven countries, sending millions of war refugees to overrun the Western World and change the quality of life for Western peoples.
Not a word will be said about Washington’s ongoing insane provocations of Russia and China and Iran and Syria and North Korea that are likely to end in nuclear Armageddon.
Speeches will celebrate “the exceptional, indispensable USA,” and fireworks will go off, preludes to the onrushing nuclear Armageddon.
While we listen to speeches of our wonderful fairy tale life, how lucky we are to be so beloved by our Great Democratic Government, the American Association of Retired Persons (AARP) has issued an all points bulletin urging its members to wake up and to urge their US Senators “…to oppose the American Health Care Act passed by the House…"
"This harmful bill gives billions of dollars to special interests while sticking ordinary Americans with huge premium hikes.
It includes an age tax that would force older Americans to pay thousands of dollars more for their health insurance.
It weakens Medicare and removes protections for people with pre-existing conditions. I urge you to represent my interests—not those of the drug and insurance companies.”
The last sentence astounded me. How is it possible that a lobby group for retired people can possibly believe that the House and Senate have any interest in serving the American people?
The House and Senate serve the people who have money, and those people are not the elderly. Thanks to the Federal Reserve, the elderly have not had any interest income on their savings for a decade.
Moreover, thanks to jobs offshoring, the middle class is shrinking, and grandparents are having to support out of their savings both children and grandchildren. Savings are being drawn down and used up. Retired Americans simply do not have the resources to compete in Washington with the pharmaceutical and insurance corporations who are determined to pillage the elderly.
In the USA money resides in the hands of the military/security complex, the Israel Lobby (US taxpayers give the money to them), Wall Street and the Banks Too Big To Fail, real estate and insurance, and environmental polluters such as energy, mining, electricity production, and agribusiness. No one else has any money. Therefore, these interest groups determine US domestic and foreign policy.
The policy of the US government is easy to sum up. It consists of driving the American population into the ground and fomenting war abroad. This is what serves the money interests that control the government.
Democracy does not exist in America. All the bombast you will hear on the 4th is designed to keep you locked in The Matrix.
The talk about “taking back your government” is nonsense. The government doesn’t belong to you. You can’t take it back.
Chris Hedges says that your only alternatives are to overthrow the criminal class in Washington or to accept your slavery.
- Silicon Valley Begins To Crack Visibly
Authored by Wolf Richter via WolfStreet.com,
Chilling photos of for-lease signs lining the Great America Parkway
There are parts of Silicon Valley where commercial real estate is still hanging on, and there are parts where it has let go.
In Santa Clara, it has let go. Overall availability of office space in Santa Clara was nearly 19% in the first quarter, according to Savills Studley, up from 14% a year ago. Only two other areas in Silicon Valley – Milpitas and North San Jose – show greater availability at respectively 23% and a harrowing 30%.
The availability problem becomes very real along the Great America Parkway, between Highway 237 and Highway 101. It’s near Levi’s Stadium. Nearby, Yahoo owned 49 acres of land that it acquired in 2006 and on which it had planned to build its new headquarters. It tore down the buildings on it and got the project approved for 3 million square feet of office space. It scuttled these plans in 2014 and turned the land into a parking lot for Levi’s Stadium. In April 2016, Yahoo sold the property for $250 million to LeEco, a Chinese company that had surged out of nowhere.
LeEco was going to get into nearly everything, including electric cars in the US. It was going to build its global headquarters on it and hire 12,000 people. Then came reality. Earlier this year, LeEco in turn scuttled those plans and pulled back from the US, claiming that it had run into a cash crunch. It has since been trying to sell the property. There will be a buyer eventually, as always, but maybe not at $250 million.
Turns out, that corridor along the Great America Parkway is drowning in office space that is for lease.
“A growing Commercial Real Estate disaster” – that’s what Michael, who has been to this area on a regular basis since 2010, calls it.
“This should be a thriving area given it is directly in the path to Levi stadium,” he said.
“I have been seeing an incredible amount of construction here and everywhere over the last few years. However in the past year, I am seeing a considerable amount of for-lease signs with new construction projects unabated.”
Here is the stretch of the Great America Parkway between Highway 237 and Highway 101:
And here are the for-lease signs Michael photographed in front of office buildings along the Parkway.
The building below used to sport a Dell logo. The logo disappeared, and now the whole building appears to be under renovation.
The building across the street now has the Dell logo:
And more space for lease.
“Santa Clara and Sunnyvale had some of the most pleasant industrial commercial buildings that blended well with curved roads and lots of trees,” Michael says.
“Now most of these are being leveled for these glass multi story monsters.”
“There are at least a million square feet of unoccupied commercial real estate on a single street.”
“Irrational construction?”
But it’s not just Santa Clara. According to Savills Studley’s report on the Silicon Valley office sector in Q1, overall availability in Silicon Valley rose to 16% and availability of Class A office buildings jumped nearly four points year-over-year to 20% in Q1.
In some areas, availability is low. But in others, such as in Santa Clara and San Jose, the opposite is the case. These two cities account for nearly two-thirds of the available space for lease in Silicon Valley. And there is a lot of construction, but only about half of it has been pre-leased.
Availability in some key places:
- Palo Alto: 6%
- Menlo Park: 12%
- Mountain View/Los Altos: 12%
- Downtown San Jose: 17%
- Santa Clara: 19%
- Milpitas: 23%
- North San Jose: 30%
Yet, overall asking rents rose 6% year-over-year. Class B and C asking rents were about flat, but class A asking rents spiked nearly 15%. Even in Santa Clara – despite the vacant offices cluttering up the landscape – overall asking rents rose 5% year-over-year.
But these are asking rents, not actual deals, where tenants negotiated big concessions and lower rents. And these deals have slowed to a crawl…
Leasing activity peaked in mid-2015 at 12 million square feet on a trailing four-quarters basis. Leasing activity has since plunged 50% to just 5.8 msf for the trailing four-quarters, even as new supply keeps piling on the market.
“It is open to debate, though, whether the region is gearing up for more growth or if the rally is winding down,” the report mused.
And nationally, the Commercial Real Estate boom-and-bust cycle has turned. Read… Next Asset Bubble Cracks: It’s so Big even the Fed is Fretting
- Visualizing The Russian Collusion Investigation's Progress
- Secret Service Grills Kathy Griffin Over Trump "Severed Head" Stunt
A little more than a month after Kathy Griffin was fired by CNN for posing for a photo holding President Trump’s bloody severed head, Dan Abrams’ Law Newz blog is reporting that the so-called "comedian" was grilled by the US Secret Service over the controversial photoshoot.
While Abrams doesn’t provide details about when and where the interview occurred, he did confirm that the interview lasted for more than an hour, and that it was related to Griffin’s desperate virtue-signaling – to other tolerant liberals – stunt.
News: Kathy Griffin has been interviewed by the Secret Service, in-person, for over an hour….investigation still not closed.
— Yashar Ali (@yashar) July 3, 2017
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Griffin’s attorney says the former CNN New Years’ Eve countdown hostess was just exercising her constitutional rights when she posed for the photo:
“She basically exercised her First Amendment rights to tell a joke,” Dmitry Gorin, a criminal defense attorney representing Griffin said. “When you look at everything in the media, all the times entertainers make videos or express themselves in other ways, you’ve never seen an entertainer, let alone a comedian, be subject to a criminal investigation.”
As Abrams notes, it’s unlikely that Griffin will be arrested: There is an exception for free speech that incites violence, but a judge would probably consider Griffin’s photo “crude political hyperbole.” Yet, the investigation is ongoing.
In a teary, nonsensical press conference staged by Griffin a few days after the photo was published, a sobbing Griffin complained that Trump “broke me” and blamed the Trump family for ruining her career and directing a mob of threats and outrage against her.
- The Fed's Definition Of Price Stability Is Probably Different Than Yours
Authored by Michael Lebowitz via 720Global.com,
The Federal Reserve Act, as mandated by Congress, established a dual mandate to guide the Federal Reserve (Fed) in setting monetary policy. Price stability, one of the mandates, benefits economic growth as it allows investors, corporations, and consumers the ability to better predict future prices and therefore allocate investments and spending in a more optimal manner.
To consider why price stability is beneficial, consider an oil producer deciding whether or not to invest in a new well. To simplify the analysis, assume the producer only needs to consider three variables to properly evaluate the project: (A) investment costs (fixed/variable), (B) a reliable estimation of the amount of oil, and (C) the future price of oil. The expected return equation dictates that profits must be greater than costs (B x C must be greater than A) to forecast a profit on the investment. The company has some control over investment costs and the surveying methods to determine the success of the well, but they have little if any control over the future price of oil. Therefore, the more stable and predictable the future price of oil, the more comfort the producer can have in making its decision about a new well.
As laid out in the above scenario, the Fed’s price stability objective appears to be positive for the oil executives tasked to make the investment decision. At first glance who can argue that price stability is a bad thing? The problem though is not the objective itself, but how the Fed defines “price stability.” Currently, the Fed believes that their objective to maintain “price stability” would be met if prices, as measured by the Core Personal Consumption Expenditures deflator (PCE- Fed's preferred inflation gauge), were to increase at a 2% rate per year.
Ask your spouse, family member or friend what price stability means and they will likely describe a relatively constant price for goods and services over time. Corporate executives and investors would likely answer similarly.
It is this juxtaposition between the Fed’s definition of stability and the definition most people would use that is worth exploring. More specifically, how has the Fed sold us on the idea that inflation and stability are the same things? The example charts two series of annual rates of price change to help answer that question.
Which is more stable, the blue or the green line? We venture to guess that you think the blue line is more stable.
The problem with that judgment is that it does not factor in price stability over any time horizon.
To maximize profits or quality of consumption, investors, corporations, and consumers are better served with predictability around what the effect of price changes will be over the long term. Given the long time frames associated with investments, capital expenditures and higher priced consumption, annual or even monthly variations in the rate of inflation hold little value. Longer term trends and the value of the dollar are what matter most.
The graph below, using the same data as the graph above, charts the purchasing power of a $100 over the 20 year period.
At a “stable” 2% rate of inflation (blue), the purchasing power of the dollar will be cut in half in 20 years. Said differently, the car you like priced at $35,000 today will cost $70,000 under a “stable price” regime in 20 years. Conversely, under the random scenario (green), with unpredictable year to year price changes, the purchasing power of the dollar remains largely intact for the entire period.
We now ask again, which scenario is more stable? Which scenario would likely provide more value to our oil executives or anyone needing to know what a dollar can buy in the future?
- China Joins Russia In Calling For Official Probe Into Use Of Chemical Weapons In Syria
If there was any confusion whether in addition to Moscow, Beijing was also behind Assad, today all doubts were laid to rest when both Russia and China called on all involved parties “to support the efforts of the OPCW and the United Nations in investigating the alleged use of chemical weapons in Syria,” according to a joint statement by Russian and Chinese leaders on the current international situation posted on Kremlin website on Tuesday, following a meeting between Putin and China’s president Xi Jinping.
“The sides emphasize that in matters of chemical weapons in Syria, all parties, with respect to Syrian sovereignty, must support the efforts of the Organization for the Prohibition of Chemical Weapons [OPCW] and relevant UN structures to conduct an independent and comprehensive investigation in order to obtain irrefutable evidence, establish genuine circumstances and draw conclusions that are capable of withstanding the verification by facts and time.”
Additionally, in the document Russia and China both “strongly condemn any use of chemical weapons anywhere and by anyone.”
The statement came days after the White House claimed last week that a new attack involving chemical weapons was being prepared by the Syrian government, however, failed to and declined to present any evidence. Washington vowed to make Syrian authorities “pay a heavy price” in case of chemical weapons use. Commenting on the White House’s statement, the Kremlin said that it considers US threats against Syrian legitimate leadership to be “unacceptable.” Damascus also denied the information.
Furthermore, after a bilateral meeting between Russian President Vladimir Putin and his Chinese counterpart Xi Jinping, the two sides called for respecting the sovereignty and territorial integrity of Syria, as well as for a political solution to the Arab country’s crisis through an inclusive dialogue.
“The parties underline the necessity of respecting the sovereignty, independence, unity and territorial integrity of the Syrian Arab Republic, call for settlement of the Syrian crisis in a political and diplomatic manner through broad intra-Syrian dialogue without any preconditions and external intervention, for a search for a political settlement option that matches the particular Syrian conditions and takes the concerns of all the parties to the conflict into account.”
Moscow and Beijing also said they welcome the Geneva talks between representatives of Syrian government and the opposition, the statement said.
Meanwhile, going back to the original fake chemical attack that was used to justify the US ballistic missile strikes on Syria in April, Damascus has repeatedly denied any involvement in the incident and said that the Syrian government doesn’t possess chemical weapons as the full destruction of Damascus’ chemical weapons stockpile had been confirmed by the Organization for the Prohibition of Chemical Weapons (OPCW) in January 2016.
So far the US has failed to explain why it refuses to accept the Syrian offer to investigate the airbase that served as the alleged source of the chemical attack, although one particular explanation is quite obvious to all. In any case, should Trump resort to another attack on Syria, once again using the fabricated excuse that Assad’s regime used chemical weapons, this time the US will have not only Russia but China as its foreign policy adversaries, as the global axes are becoming increasingly more distinct ahead of the next world war.
- Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto
Two days ago when we reported that the Illinois House had voted 72-45 to pass a 32% income tax hike (and a $36 billion spending plan), in an last ditch scramble to provide the state with its first budget in three years (or else suffer the first ever US downgrade to “Junk”), we said that “ultimately, the fate of Illinois’ credit rating is now in the hands of Rauner, and whether and how fast his imminent veto is overriden.”
We got the answer on Independence Day afternoon, when just around noon, first the Senate voted to approve the House tax hike and spending bill, then shortly after, Gov. Rauner – just as he warned he would – vetoed both the income tax increase and the budget bill and budget implementation bill….
I just vetoed Speaker Madigan’s 32% permanent income tax increase. pic.twitter.com/Hn5SPm0w2h
— Bruce Rauner (@GovRauner) July 4, 2017
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…. only to be himself overriden moments later by the Senate, as it took the drastic measure to end a record budget impasse.
The 36-18 vote in the Senate on the tax hike came after a very short debate, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.
Needless to say, former PE titan, Bruce Rauner disagreed, and in his veto message to lawmakers said that “the package of legislation fails to address Illinois’ fiscal and economic crisis —and in fact, makes it worse in the long run. It does not balance the budget. It does not make nearly sufficient spending reductions, does not pay down our debt and holds schools hostage to force a Chicago bailout.” Rauner also noted he did not get the economic agenda items he had made a requirement to sign a tax hike into law.
“This budget package does not provide property tax relief to struggling families and employers. It does not provide regulatory relief to businesses to create jobs and grow the economy. It does not include real term limits on state elected officials to fix our broken political system” said Rauner, listing the issues from what he once dubbed his “turnaround agenda.”
Gov. Bruce Rauner holds a press conferenceIt does however stave off the day of reckoning and potentially Illinois junk status downgrade.
The voting came as Illinois entered its third year without a budget amid Wall Street’s threat of a credit downgrade to junk status, potential layoffs of construction workers and with Illinois already booted from the Powerball and Mega Millions lottery games.
“We don’t have any time left,” said Sen. Toi Hutchinson, D-Olympia Fields. She laid out what is at stake without a resolution, including the state’s credit rating being downgraded to junk status, road workers being laid off, and the dismantling of higher education and social safety net.
* * *
The tax hike and budget now head to the House, which also will have to vote to override Rauner for them to become law. But according to the Chicago Tribune, Democratic Speaker Michael Madigan said the House would not do so Tuesday, meaning the budget process will play out at least another day. The House is not scheduled to convene until 4:30 p.m., but attendance has been an issue as lawmakers had dispersed for the holiday. Still no surprises are expected:
“I think that the Senate vote is reflective of the vote in the House. I think it speaks to all the hard work that has been done by a bipartisan group in the legislature,” Madigan told WICS-TV of Springfield after the vote. “My expectation is that the bills that the Senate just passed will become law and we will have taken a huge step toward correcting the financial imbalances of the state of Illinois.”
Perhaps, although some have suggested that instead of hiking taxes, which will lead to a fresh exodus of taxpayers from both Chicago and Illinois (recall the Chicago population is already shrinking the most of any US city) what the budget should have done is slash spending. Of course, that is the last thing on the mind of legislators of one of America’s biggest nanny states.
In fact, quite the opposite: the accompanying budget plan, which the Senate also quickly approved 39-14, would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes. In other words, Illinois just “saved” itself from default but assuring it would end up with even more debt.
* * *
Going back to the vote, as the Tribune adds, the 36 votes in the Senate was the minimum needed both to pass and override a veto. There are 37 Democrats in the Senate, but two voted no. They are Sen. Julie Morrison of Deerfield, and Sen. Tom Cullerton of Villa Park. Both likely will face a tough re-election challenge. Sen. Bill Haine, D-Alton, who has been undergoing treatment for blood cancer since February, traveled to the Capitol to vote for the plan. The critical vote belonged to Republican Sen. Dale Righter of Mattoon, who noted the damage done to Eastern Illinois University in his district.
“Every dollar that we throw onto the backlog of bills is a dollar the next generation has to pay for even though we got to spend it,” Righter said. “That’s simply wrong, and that is the basis for which I support this.”
* * *
So do today’s last minute Senate fireworks mean no Illinois downgrade to junk is coming? It remains to be seen: the movement after years of dysfunction was enough to delay the state’s credit rating from being cut to junk status by Wall Street ratings agencies Monday, though they warned that much rides on a final approval of the budget package. Even then, S&P Global Ratings warned that long-term damage has already been done.
“Even with a budget, however, it’s likely that Illinois’ finances would remain strained and vulnerable to unanticipated economic stress,” the agency said. “In addition to having accumulated record amounts of payables, the state’s university system has been deprived of state funding since January 2017. If a budget is enacted, the degree to which it closes the state’s structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois’ credit quality.”
Meanwhile, on Monday Fitch called the weekend developments “concrete progress,” noting that it appears the legislature may have enough votes to override Rauner’s planned veto of the tax hike. S&P called the actions a “meaningful step.” Yields on the state’s 10-year debt have soared to 4.8 percent, 2.8 percentage points more than those of benchmark obligations. That’s the highest yield of all 22 states that Bloomberg tracks.
It would be the ultimate insult to Illinois if despite the last minute scramble, S&P were to do to the insolvent state what it did to the USA in August 2011, when despite the pleas of Obama, Geithner and the entire administration, it went ahead and did the unthinkable, when it downgraded the US from its vaunted AAA rating. In any case, it’s only a matter of time before Illinois slides not only to Junk, but to Default as well…
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