Why Chicago is NOT Detroit, But Illinois Is
- Posted by Jeff Carter
- on July 19th, 2013
Detroit declared bankruptcy yesterday. Depending on which news source you follow, it’s big news, or it’s not.
Many are calling on the federal government to bail out Detroit. After all, the Feds bailed out GM and Chrysler. Why not bail out a city in our fair country?
Because then the entire tax base of the US is responsible for the misdeeds of one city. Can’t happen, and the Feds shouldn’t bail out states or private companies either.
Chicago has its own pension and spending problems. But it’s not Detroit. Detroit’s economy was based on one industry. It was a one trick pony. Chicago’s economy is a lot more diverse than Detroit. Losing an industry leader here would hurt-but not fatally damage Chicago.
The only company that could pull out and cause Chicago to go into a downward spiral is CME. All the side businesses related to $CME add up to a pretty large number, and a lot of ancillary jobs depend on them being there.
Illinois on the other hand is in deep trouble. There aren’t enough economic engines in the entire state to support what politicians did to it. Chicago is the only big one. Other towns in the state aren’t creating wealth at the pace that’s needed to make up the pension/public sector spending deficit. Plus, people are leaving the city of Chicago.
Yesterday, Chicago had its bond rating slashed. Illinois has a bad debt rating too. Currently, it stands at A3 with Moody’s. It’s hard to put into words what that actually means for Illinois taxpayers.
Debt is at an all time high with all government. The numbers are so big, we become immune to them. Individuals feel powerless to do anything about it. It’s worse when someone totals it up. For example, in Detroit, if every man, woman and child wrote a check for slightly over $26,000 today, the city would be okay.
Most people don’t have that kind of money sitting around, so they ignore what’s going on or feel helpless.
Politically, it is simple to blame Democrats. Obviously, Chicago was run into the poor financial health its in by Democrats. But the state of Illinois is different. Republicans participated as well.
There are two things going on in the debate over what to do about the deficits in Illinois.
First, there are the true believers. The socialists. Grow government, grow government pensions, support unions at any cost. They truly believe that’s the way to run society. More spending and higher taxes is the only way. They hide behind ill formed laws and contracts.
The second way is more pernicious. They use government to feather their nest and their friend’s nest. Crony capitalism. It permeates both sides of the aisle. They are trying to figure out the best way to keep the game going. They’ll vote to raise taxes and user fees. They have an innate sense of the elasticity of these things, so they raise them just so much.
Currently, there is only one candidate that can solve the mess in Illinois. Bruce Rauner. The rest have all been there and had their shot.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)