Detroit Leads the Way for American Cities

The journey by America into the third world is being lead by that Motown City of Detroit, Michigan. Just look at these photographs posted at Time Online Magazine and see how they fit into your vision for America.

The photographs should make any American angry as well as ashamed. They should also be a wake up call. The current financial crisis is drastically effecting the tax base of many American cities. The collapse of real estate values exacts a heavy toll on city revenues as most cities collect the majority of their tax revenues from real estate taxes. Major cities like Atlanta and New York City have already started to cut back on their services, even highly important services like police and fire protection.

The loss of a large part of its tax base is how Detroit started on its way to decline. A positive feedback loop develops as people flee the cities core. As people leave retail and office space becomes vacant, neighborhoods decline, services are cut back, all of which makes more people flee the city. And of course as tax revenues fall even more cutbacks occur and maintenance on vital services provided by the city like road repair, water, and sewer is deferred with devastating results. Once underway, it is a difficult problem to reverse.

Detroit is already more like a third world country than the America I grew up in. From what I’ve seen in photographs and videos I’m sure that I would find the experience of a trip to Detroit terribly depressing. The really depressing part of the Detroit fall into third world status is that it has occurred in full sight of the elite in Washington. Our leaders seem to be more concerned about power and posturing and serving their economic masters (Banksters) than serving the poor suckers, errrr, that is the poor American taxpayers, who are paying for their pomp and circumstance and solid gold retirement plans.

What truly makes me sad is that Detroit is very likely like a time machine. You can look at Detroit and see a vision of what the big cities of America are on their way to being. Those who think that the current financial crisis is just a normal recession are tragically mistaken. The financial bedrock of the American capitalistic system has been exposed as resting on the false premise that debt equals money. As a deflationary vortex sucks the life out of the economy debt in many cases can not be refinanced and has to be liquidated. As debt is liquidated by bankruptcies and restructuring money is destroyed.

This is what we are experiencing now. Debt based financial instruments that depended upon cash flows from questionable assets priced at bubble prices for their value are now worth far less than they once were as in many cases the likelihood of the debt ever being repaid is at zero. Once payments stop on the loans the cash flow that establishes value becomes zero and the value of that security also become zero unless there is some chance that a cash flow in some amount will be reestablished by someone at sometime.

As it is unlikely that timely payments of the same amount will ever resume on impaired financial instruments the banks are dreaming by carrying troubled loans on their books at anywhere near par. When banks stop lending because they are insolvent (too many bad loans, not enough payments, too much fear, loan portfolios full of toxic assets still not written down) entire communities are at further risk. Just ask the people of Detroit where I dare say bank lending to finance any business in the city is just about non existent.

The revaluation of worthless or near worthless assets by changing accounting rules or setting up procedures to let the public pay off the debt by government trickery (fraud) will not work. The toxic assets securing the debt are as worthless as ever once they are brought to the market. Carrying the assets on the books at inflated values is a complete sham. Government may be able to kick the can further down the road by encouraging this criminal behavior but eventually a day of reckoning will come.

And when it does come the results can be severe. Just look at the photographs of Detroit. And GM has not even filed for bankruptcy. Yet. Welcome to the third world, America.