Bankruptcy

You Are Not Alone! For that Matter, Neither Am I!

By Joseph McDaniel, Esq.

And I have, from time to time, pointed out that entire cities may be filing bankruptcy cases in the near future.

Now, when you are buried in debt, and creditors are harassing you night and day (like they do), and your house is scheduled for a trustee's sale in two months, you are likely to feel like you're in this depression all alone, and by yourself.

But you aren't!

Turns out that entire countries may be teetering on the brink, and that politicians have a ton of trouble finding their heads with both hands in a brightly lit room, when it comes to finding solutions.

And that's everywhere!!

In any case, I was both horrified to read this article, and pleased that I wasn't the only guy who figured that we were headed for a deep, dark, economic disaster if we don't put a pinch collar on government spending.

So if I get to be scared, you get to be scared! And remember that the glass is half-full: if you're going bankrupt and can't pay your bills, and entire countries are going bankrupt and can't pay their bills, well, you're in pretty good company, aren't you?

And here's the full text of the article I just read, which gave me the willies:

Friday, May 28, 2010
Is the World Broke? Entitlements, Spending May Spell Doom

By Ray Hennessey
FOXBusiness

Worldwide markets will soon close out a brutal month, thanks to a realization among traders and economists that spending by governments across the globe has threatened many economies with running out of cash.

What started as a cautious eye toward problems in a marginally important economy in Greece became a full-blown crisis, when ratings firms cut debt outlooks for fellow eurozone economies Spain and Portugal. There were concerns that the euro itself would collapse, or at least break into pieces, either because Greece was thrown out or more stable economies like Germany pulled out.

But it isn?t just a European problem. Spending in the U.S. threatens to leverage the domestic economy so much that it faces, within just a few years, a debt level that represents the country?s entire gross domestic product. And, since the U.S. is a relatively strong world economy, even with unemployment near 10% and uneven signs of recovery, American taxpayers have been forced to dig deep to help out the rest of the world.

Indeed, the bailout of Greece couldn?t happen without two American contributions: the U.S.?s funding of nearly 20% of the International Monetary Fund, which is helping to keep Greece afloat, and the move by the Federal Reserve to swap dollars for euros, thus helping prop up European banks.

So how did we get here? It is a combination of factors, but boils down to five main themes.

Is the World Broke? Check out FOX Business Network's full coverage on the topic.

Entitlements. Worldwide, governments have made commitments they cannot keep. In the U.S., 19% of wages are paid by the government, according to the Bureau of Economic Analysis. Government job growth has outpaced that from the private sector. Many European governments already have bloated bureaucracies and government-spending rates that are well ahead of those here.

And the government in the U.S. is taking on broader responsibilities for health care, as well as seemingly endless extensions of jobless benefits ? once designed to be merely temporary stopgaps until people found work.

Overseas, the entitlement culture has rotted some economies from within. Spain?s 20% unemployment rate, for instance, is tolerated because of the public benefits the unemployed receive, thereby killing incentives to find new work.

Unions. ?Austerity measures? is the new catchphrase in Europe nowadays, as governments scramble to get their fiscal houses in some semblance of order. But labor unions ? notably the public ones ? have reacted by holding massive protests. They have become regular events on the streets of Athens ? even the Greek Air Force at one point was hit by a pilot sick-out.

Same issues domestically. In the U.S., New Jersey Gov. Chris Christie has faced the toughest resistance to his own budget cuts from the teachers unions, who have largely fought calls to make contributions to their own retirement and health-care plans.

Spending. Government debt and deficits have been driven by over-spending for years, but, lately, that has accelerated. In fact, it?s part of the plan: the way to get out of a crisis built on spending has been to spend even more now, with the promise that more responsibility will come later. Indeed, White House economic advisor Christina Romer said in Europe this past week that governments still have ?fiscal room? to spend to reduce unemployment. Indeed, she has warned that cutting back now will hurt, not help.

"It would be penny wise but pound foolish to deal with our long-term problems by significantly tightening fiscal policy immediately or foregoing additional spending to reduce unemployment," she told the Organisation for Economic Co-operation and Development 2010 Forum in Paris. "Immediate fiscal contraction would inevitably nip the nascent economic recovery in the bud.?

Corruption and Lack of Ethics. As Greece gets its house in order, some startling revelations are coming to light. Widespread tax evasion costs the country an estimated $27 billion annually, and it is happening even among the government officials charged with being stewards of its economy. Greece's Finance Ministry, according to an internal report obtained by FOX Business, has found 70 government tax officials who make about $70,000 on average a year, but own millions of dollars in real estate. Another 234 tax workers never filed taxes for 2007 to 2008. The Ministry is also investigating 50 complaints brought against tax workers in 41 government offices, alleging bribery, forgery, and corruption. One out of 7 people in Greece paid a bribe, and a quarter of all taxes owed in Greece goes unpaid, versus an average 7% here in the U.S.

Breaking the rules is common throughout Europe. All 16 eurozone countries have just two requirements: keep debt to 60% of gross domestic product and keep budget deficits to 3% of GDP. Turns out, the track record was never so good. Overall, according to an analysis by Bloomberg News, countries only met the requirements 57% of the time. Greece never met the requirements in all nine years it was in the eurozone. Belgium and Italy missed one or both requirements in all 11 years. Only Finland and Luxembourg met the goals every year.

Over-regulation and Over-taxation. The response among some governments, most notably that in the U.S., has been to increase regulation and taxes. The big highlight has been the financial-services regulatory revamp that passed the Senate, and now faces negotiations with the House. An estimate by Goldman Sachs (GS: 137.15, -0.5, -0.36%) suggests the bill would take 19% of profits out of the banking system, because of new rules and restrictions against certain business activities. Europe is considering new bank rules and, notably, a new banking tax. The European Commission on Wednesday proposed that each European Union government assess a special tax on banks to create a fund dedicated to ensuring the "orderly failure" of troubled banks.

And, no matter where there?s a budget problem, a common solution has emerged: tax the rich. On Thursday, Secretary of State Hillary Clinton said wealthy Americans don?t pay enough taxes. ?The rich are not paying their fair share in any nation that is facing the kind of employment issues [America currently does] ? whether it?s individual, corporate or whatever [form of] taxation forms,? Clinton told an audience at the Brookings Institution.

The numbers don?t bear out that hypothesis: The top 1% of tax returns paid 40.4% of all federal individual income taxes and earned 22.8% of adjusted gross income. Going down the list, the top fifth of households made 56% of pre-tax income but paid 86% of all individual income tax revenue collected, according to the Congressional Budget Office. According to the Tax Policy Center, about 45% of Americans pay no federal income taxes at all.

It?s worldwide, at all levels of government. In Spain, José Luis Rodríguez Zapatero, Spain's Socialist prime minister, said the government planned a new tax on the rich as part of a campaign to reduce the budget deficit. Democrats in New York and New Jersey have floated a special tax on earners making more than $1 million a year. And the UK?s new government is trying to push through a new capital gains tax.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on June 22, 2010 (boomark / email).