CNN.com
10/9/08
Emanuella Grinberg

The demand for unemployment benefits across the country has put a strain on state unemployment funds, with such funds in at least 10 states facing insolvency in 2009, according to a policy group.

On Tuesday, California state officials told lawmakers in a hearing that their unemployment reserve fund was on track to run dry by March based on the state’s forecast unemployment rate, which hit 7.7 percent in August.

Last month, South Carolina Employment Security Commission chief Ted Halley said his state’s fund was also projected to run out by January. As of August, the state’s unemployment rate was 7.6 percent.

Eight more are on the cusp, based on a formula that projects the amount of money the state would need in a recession.

"These states are not ready for a recession, and they’re going to see a big hit if we have a protracted job slump," Stettner said. "We’re going to see them seriously in the red, but they can take some action and not be swimming in red ink."

My comment: I have no doubt that states and local governments are totally unprepared for what is occurring. I also have no doubt that a Democrat controlled Congress and a President Obama will flood them with federal money in a feeble attempt to bail them out. This of course is not money that we have so treasury bonds will be sold. The question is who will buy them? At some point our creditors are going to realize we cannot pay them back and will stop buying treasuries. Then we will be forced to either live within our means or monetize our debt which will lead to a hyper inflationary outcome. History and human nature has me betting on the hyper inflationary outcome. I am continuing to rathole gold bullion on weakness either through direct purchase, which is becoming more difficult, or through the Central Fund of Canada. I do not trust the GLD or SLV as I am not interested in having Barclays bank as a counter party. My Prudent Bear Fund holdings have been an excellent hedge although I suspect we will see some type of relief rally in the near future. I am also going to deposit some money in this Bullion vault outfit and see how that works out. I am not going to go nuts with it but it appears to be legit and run by competent people, an ad for the site appears above. Note full disclosure I do get a fee if you sign up for Bullion Vault from this site. I would be interested in hearing from any readers that have dealt with this firm. I still suggest, if you have the means, that you set up a foreign bank account. Historically governments will implement capital controls when a run on their currency gets under way. It will be to late to do this once the run on the dollar begins as the government will make it illegal to move wealth out of the country. If you are foolish enough to store your wealth in a currency like the dollar that is being debased right in front of your eyes then well all I can say is everyone is responsible for their own decisions and that you were warned. I have said in the past that these people in government are not your friends and they will do anything and everything to forestall a deflationary depression as that would upset the entire current power structure. That means bans on gold ownership, capital controls, wage and price controls, and reductions in civil liberties as people begin to act out on their economic frustrations. Is till think that in the early part of this reflation that hard assets should recover and do fairly well but as I have said I may have been real early on this call and I have been punished as I have held through this recent market turmoil.