Grand Rapids Pundit’s Michigan Economy Tracker index has been updated. The state’s sales tax revenue level dropped 0.4% from July of last year. This is particularly bad, because the Michigan Economy Tracker tells us year over year growth. The problem is that July 2009 was the bottom of 2009′s sales tax revenue decline. Although the index is still at a positive value for 2010, remember that it measures a three month trailing average. The actual raw number of July of 2010 is -0.4%, meaning that sales tax revenue in July of 2010 is 0.4% below the already dramatic drop in July 2009. In other words, we’re worse off than we were last year at this time.

Things aren’t getting better, they’re getting worse.

This is borne out by another index that I watch closely – the Consumer Indexes Daily Growth Index. It shows the year over year decline in consumer spending dropping to -5.3%. This is real-time data, not like the government’s GDP numbers which have a lag of 30-90 days.

Looks like we’re in for a rough winter.

The perpetually positive Realtors of the world are essentially always saying that it’s a good time to buy. The government made it a matter of national policy, through the wasteful “home buyer’s tax credit,” to get more people to buy houses. But is it really a good time to buy?

One thing that I think many people don’t understand is the relationship between house prices and interest rates. Yes, it looks very attractive right now to buy a house to utilize record-low mortgage rates (around 4.5% these days). Wow, that’s an amazing deal, right?

But the point is that interest rates are at record lows. Where do they go from here? Naturally, the only way they can go, eventually, is up. What happens to home values when interest rates increase? They go down. Let me demonstrate.

Let’s say you have $10,000 to put down on a house and you can afford a monthly payment of $800 a month. This means you can finance about $160,000 (this does not include taxes, insurance, etc).

What happens if interest rates go up to 5.5% Now you can finance about $142,000 for the same monthly payment.

How about if interest rates go up to 7%? Now you can only finance about $122,000.

Do you see how interest rates decrease home values? If suddenly everyone loses $20,000-$40,000 in purchasing power, home prices will theoretically drop by that much. This means that if you buy now and interest rates go up, your home value will drop and you will lose value. This is exactly what happened in the last three years and lending standards and defaults have dramatically changed the housing landscape.

But, then again, there’s the counter argument that the unsustainable and destructive national debt can only be paid back through hyperinflation. You can gamble and hope that this happens, which would end up wiping out your debt for pennies on the dollar. Maybe that’s the politicians’ long term plan – hyperinflate so that a wheelbarrow of worthless money will pay off everyone’s now-worthless mortgages. Then again, that wipes out everyone’s life savings at the same time. Oh well, at least everyone will have a wheelbarrow of cash!

Just as we were warned by Grand Rapids’ police chief before this year’s income tax hike that a failure of the tax increase would result in ‘increased risk’ for city residents, the Police union in Bay, Michigan is actually threatening residents that they will be “beaten, shot, stabbed [and] robbed” if the city doesn’t approve their latest employment contract.

Yes, here’s a picture of the billboard:

State and local government budgets are only to get worse, and as I’ve repeatedly demonstrated, public sector benefits packages are inherently unsustainable. We will see much more of this type of taxpayer extortion. As the public sector unions demand more raises, more  benefits, and more pensions, the residents who pay for them will eventually wake up and realize that they’ve been scammed. This is just one example of a growing trend.

I’ve added a tab to the GR Pundit web site with what I’ve created and now call the “Michigan Sales Tax Revenue Index.” You can view it by clicking on the tab above. This index is a three month average (to smooth the volatility) of the state’s sales tax revenue. Any number above zero means that sales tax revenue is higher that month than the previous year, and any number below zero means that revenue was below the prior year’s. These are year over year, monthly numbers.

June’s Revenue Index level was 1.63, meaning an increase in sales tax revenues from June of last year. But it’s important to remember that last year’s index was -12.7, which was a whopping decrease from 2008.

Sales tax revenue is one of the best current indicators of economic activity. While the government releases GDP numbers and other stats, they are generally several months old. Sales tax data is a better snapshot of the economy now.

This chart will be updated monthly as the Senate Fiscal Agency releases monthly revenue reports.

I’ve created a new chart, which will be updated monthly,showing the balance of the city’s combined pension plans in comparison with the stock market, tracking S&P 500 index. Unfortunately, as I’ve pointed out previously, the city’s pensions are largely invested in risky assets which makes the entire plan correlate well with the markets. Please see the chart below:

Please note that the chart is quarterly before 2009 as this is the time period in which the city has published its pension balances. After that date, they have been publishing them on a monthly basis. They haven’t posted May or June of this year yet, but based on historic correlation, we’re in for a big drop. The S&P 500 has dropped about 13% in the last two months (reflected in the chart above). (Please also note that these numbers are as of the last day of each month)

While the city raised income taxes solely to fulfill their fiscal year 2011 pension contribution of $15 million, I estimate that in the last two months the pension plans have lost about $81.9 million in value. Oops!

No surprise here. Michigan is in the top 10 of highest property taxes of all the states. Wayne county, the highest property tax county in Michigan, is number 38 in the nation (among 790 counties). Is this a surprise? Wayne county is the most destitute, failed county – possibly in the nation.

Kent county is number 170 in the nation, in the top 21%.

More data is available here.

We learned today, via the Grand Rapids Press, that 40% of the city of Grand Rapids’ population is on Medicaid and 34% of the city’s population is on food stamps. This is, of course, part of the surging trend of food stamp recipients across the nation, which reached a record-breaking 40,000,000 people this month. 58,000,000 people receive Social Security. 10,000,000 people receive unemployment checks. 50,000,000 people pay no income tax at all.

The federal government has spent $800 billion more this year than it received in revenue. The full fiscal year deficit is expected to be about $1.5 trillion (which is even higher than last year’s). Surprise, the new health care law will cost $150 billion more than estimated just a few months ago.

Frankly, this is all you need to know, visualized for your viewing pleasure:

Debt doom

I’m reminded of a quote from my favorite political economist, Frederic Bastiat, from the mid 19th century:

Self-preservation and self-development are common aspirations among all people. And if everyone enjoyed the unrestricted use of his faculties and the free disposition of the fruits of his labor, social progress would be ceaseless, uninterrupted, and unfailing.

But there is also another tendency that is common among people. When they can, they wish to live and prosper at the expense of others. This is no rash accusation. Nor does it come from a gloomy and uncharitable spirit. The annals of history bear witness to the truth of it: the incessant wars, mass migrations, religious persecutions, universal slavery, dishonesty in commerce, and monopolies. This fatal desire has its origin in the very nature of man — in that primitive, universal, and insuppressible instinct that impels him to satisfy his desires with the least possible pain.

Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

Now since man is naturally inclined to avoid pain — and since labor is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work.

History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor.

It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.

Most Americans probably haven’t heard of the term austerity until recently. If you lived in Europe, it would be a daily topic of discussion. Austerity essentially means being forced to live with less, particularly as it relates to government benefits. As Greece has essentially entered a period of national bankruptcy, the government is finally being forced to spend less money. That’s the ultimate end game of governments who cannot stop themselves. They are eventually forced to stop by external economic forces.

Greece, as well as many other European countries, has lived for a long time on soft socialism. As time went by, more and more “worker protections” were passed making it hard to fire people, giving away bigger and bigger government pensions, more and more civil servants on the payroll, more “bonuses” to those civil servants, and even lying to the rest of the world about how much money was actually being spent by governments. But, as anyone who can do a little math would conclude, this can’t go on forever. You can’t go on forever spending more money than you take in. I know, I know, many politicians and other apologist buffoons will tell you that we can indeed go on spending forever, but they are either stupid or lying.

I’d like to re-post some items from a blog I regularly visit, Mish’s Global Economic Trend Analysis:

- Begin quote -

Social unrest continues to brew in Europe. This time in Romania and Greece. France is on deck as French President Nicolas Sarkozy battles unions who refuse any cuts in pension benefits. French unions have called for a general strike starting May 27.

Let’s kick of the discussion with a look at Romania. The BBC reports Thousands protest over Romania austerity measures.

Tens of thousands of public sector workers have gathered in the Romanian capital Bucharest to protest against plans to cut wages and pensions. The gathering was one of the biggest on the streets of Bucharest was one of the biggest since the Romanian Revolution.

“We will not leave until the government quits,” said Bogdan Hossu, leader of the Cartel Alfa trade union. Marian Gruia, head of the policemen’s union, called on Romanians to unite, “as we did in 1989, when we overthrew the dictatorship” of communist leader Nicolae Ceausescu.

Romania’s economy shrunk more than 7% last year and it needed an IMF bail-out in order to meet its wage bill. It says it needs to implement new austerity measures to qualify for the next installment of the 20m-euro ($25bn; £17bn) IMF loan.

The government has proposed wage cuts of 25% and pension cuts of 15% in order to reduce the country’s budget deficit.

New Wave of Strikes in Greece Over Painful Austerity Measures

Please consider Greek unions hold new general strike against cuts

Unions plan to protest the painful austerity measures of Greece’s cash-strapped government by holding a general strike Thursday that will close much of the country’s public sector and shut down the country’s ferries, trains and public transport.

Thursday’s strike is to shut down schools, tax and local administration offices, ferries, trains and most other public transport options in Athens. State hospitals will have to operate with emergency staff only.

Most flights will be unaffected, as air traffic controllers will stay on the job. However, some regional airports will close, and Greece’s Olympic Air carrier said it was canceling 30 domestic flights.

Austerity Woes in France

Inquiring minds are reading Sarkozy Grapples With ‘Politically Unacceptable’ Deficit Cuts.

French President Nicolas Sarkozy’s popularity fell to its lowest since his 2007 election last month. Worse may lie ahead as he cuts spending and raises taxes in the wake of Europe’s financial crisis.

Sarkozy risks increasing voters’ ire two years ahead of presidential elections as he strives to meet promised deficit- reduction targets and pacify investors. The choices include the politically sensitive areas of lifting the top tax rate and tightening pension requirements.

“Austerity is economically necessary but politically unacceptable,” said Laurent Dubois, a professor at Paris’s Institute of Political Studies. “But he has no choice, the debts are too heavy.”

The dilemma facing the French leader, who took office three years ago this week, underscores the bind facing European Union politicians, whose response to the Greek debt crisis prompted them to pledge reductions in their deficits and public debt.

Sarkozy has said he will cut France’s deficit to 3 percent of economic output in 2013 from 8 percent now. His reliance on a spending freeze, economic growth and a pension overhaul will get him only partway there, according to Samuel-Frederic Serviere, a researcher at Ifrap, a Paris-based group that monitors government spending

“With just the measures that have been announced, at best we’ll get the deficit down to 5 percent by 2013, and that’s in the best of cases,” Serviere said. “What they’ve announced so far just isn’t sufficient given our European engagements.”

Union leaders say they won’t accept any change to France’s legal retirement age of 60 and have called a general strike for May 27. The opposition Socialist Party is also defending retirement at 60 and says higher taxes will plug the deficit.

- End Quote -

What does this have to do with Grand Rapids? We see our own microcosm of looming austerity here. As this blog has pointed out over and over, the city’s pension plans are unsustainable. Rather than do anything about it, the city’s leaders pleaded for, and got, a tax increase that will, at most, kick the problem down the road for 12 months. As I’ve demonstrated, the city’s pension plans are a ticking time bomb that will bankrupt the city. Not might bankrupt the city. The city’s pensions will bankrupt the city. The city’s politicians don’t want to deal with that now, though. They prefer to string the problem out as long as possible. In the mean time, they threaten us with reduced police and fire protection if we don’t approve their pension bailout.

Well, it worked. Now the city’s taxpayers get to pay more. The increased taxes will not restore or increase city services. In fact, the tax increase has guaranteed that city services will continue to be cut. How? Because we extended their pension failure by one year. All this extension does is guarantee that things will be worse next year by not addressing the root of the problem.

And that brings us back to the beginning of this article. Politicians do not stop overspending until they are forced to. Eventually Grand Rapids’ politicians will be forced to fix the issue, but until then, they will do everything in their power to keep the failed pension plans going. This guarantees that more and more money goes to pensions and less and less money goes to doing what a city should actually be doing: police, fire, roads, etc. The citizens will suffer while the politicians cower and fail. The city’s bureaucrats will eventually be forced into austerity.

We have tea parties (which were silent in regards to Grand Rapids’ tax increase) who claim they want cuts in government, but it’s clear people don’t actually want any cuts, because so many people are dependent on the government’s teat. We all want to live off someone else. That works fine for a while, then suddenly it doesn’t.

I’ll end this post with another prescient quote:

“Unlovely as they are, the Greek rioters are the logical end point of the advanced social democratic state: not an oppressed underclass, but a pampered overclass, rioting in defence of its privileges and insisting on more subsidy, more benefits, more featherbedding, more government.”

BREAKING NEWS: State bureaucrats surprised to learn that paying people to do nothing results in more people doing nothing.

From the Detroit News: Landscapers find workers choosing jobless pay

But B&L Landscaping in Oak Park finds the labor pool is noticeably weaker and less motivated, director Richard Angell said, even though the company still gets 80 to 100 applicants per week.

“We’re just getting people coming in, filling out paperwork, hoping they won’t get hired,” Angell said. “… We’re having a hard time finding quality applicants.”

This past week the City of Grand Rapids has admitted that the pension fund deficit for this coming fiscal year (starting July 1, 2010) has gotten even worse than before. According to the Grand Rapids Press, the city’s pension plan actuary (the people who run the plan and tell the city how much needs to be contributed for it to be fully funded) has increased the city’s required pension fund contribution by $3.7 million.

This is on top of the $7 million pension deficit that was already budgeted for next year. This means that the pension fund contribution deficit (not the total amount due) is now over $10 million, just for next year.

And the city continues to maintain that the income tax increase on the ballot May 4th will “save” or “increase” city services. The income tax increase is expected to raise about $7 million next year. How exactly do they expect to “increase” or “save” city jobs when the new pension deficit alone is over $10 million. Now we’re at a point where more than 100% of the income tax increase will go solely to the pension plans (as I demonstrated, using the city’s own numbers). If the income tax increase passes, it will go straight from the wallets of city residents to the pension fund.

The city has been having a series of “town hall” meeting to explain and drum up support for the income tax increase. By the sounds of it, they aren’t going so well:

Bill Kudlack showed up at Monday’s town hall meeting on the fence about whether to support a city income tax increase over the next five years. He left still on his perch.

“There is a lot of government waste, and I always think you can cut somewhere else,” said Kudlack, emphasizing he needs to be convinced officials have done everything possible to reduce costs before coming to taxpayers for a hike.

But Mike Farage said he left the meeting even more convinced he can’t support a higher income tax.

“Clearly, their best is not good enough,” Farage said of using taxpayer dollars efficiently. “They are also using the typical scare tactic when it comes to police and fire services.”

Only about 40 people showed up at Union High School for the first of six scheduled town hall meetings, and many of those were city employees. The meetings are designed to examine city finances and inform voters about the two May 4 ballot requests.

The word is getting out there: the income tax increase will do nothing to save or improve city services.

The city bureaucrats and politicians are desperate to prop up the failing pension systems at all cost, no matter how much it costs taxpayers. They want to continue to make sure the problem is put off as long as possible. But math is a simple thing – it always works. Not even the Grand Rapids city commission can repeal the laws of compounding numbers. The pension plans will fail. The question is how long will we, as residents, tolerate cutting our family budgets just to fund Cadillac pension plans for city workers?