Friday, March 12, 2010

Defaulting on debt is good for economy -- seeing is believing

In another news item running along the theme noted in Deleveraging by default, the WSJ is reporting,

Household Net Worth Rises
Americans got richer for a third straight quarter at the end of 2009

For 2009 as a whole, net worth rose 5.4%. Household net worth is assets, such as home equity, minus liabilities, such as mortgage debt.

A large chunk of the increase in net worth came from a drop in household debt, as an increasing number of financially stretched consumers defaulted on mortgage and credit-card debts. While the defaults are painful for families and costly to banks and investors, economists say they are also speeding the financial rehabilitation necessary for a return to robust growth.

"It puts us closer to the point where the consumer can start making a stronger contribution to recovery," said Joseph Carson, director of global economic research at AllianceBernstein in New York.
So make sure you go out and do your part.

School districts in Missouri and Michigan are doing their part.


In the "I'll believe it when I see it State, School Crisis Rattles Missouri:
The Kansas City Missouri School Board voted Wednesday night to shutter nearly half of its schools in an effort to avoid going broke.

The plan comes as school districts around the country, battered by the recession and budget cutbacks, are closing facilities to save money. Detroit closed 29 schools before classes began this fall, leaving the district with 172 schools, according to the Associated Press.

In Breaking News from Wyandotte, Michigan,
It might be necessary to close yet another school for the district to balance its budget.

On the heels of closing McKinley Elementary School last year, Wyandotte Public Schools is considering shuttering Taft Elementary School to eliminate a projected $4 million deficit for the upcoming school year.

The stories from the Kansas City case all note that the school district there has been shrinking in student numbers for decades, while, apparently, trying to keep the same size system, underwritten in part by a huge busing/segregation case settlement years ago. If so, that is just bad management, and, maybe in that case, this could end up being a good opportunity to clean up the overhead. (PS: Guambat just noticed this WSJ article saying essentially just that: District Tackles Woes Money Didn't Fix.)

But the wider strictures on school systems shows this is not solely a mismanagement of school systems. It is a product of the mismanagement of the economy by reckless credit and bank deregulation.


Meanwhile, out towards Guambat's neck of the Pacific, in Hawaii (which is 5 hours flying time closer to the Mainland, with Guam another 7 hours from there), is planning to defer three month's worth of payments to health plans for its public health insurance program, according to the Pacific Business News, in its Feb. 18th edition. If this economy bounces, it's a dead cat nevertheless.

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