Who could have seen this coming? Besides me and every other survivalist out there:

NEW YORK (CNNMoney.com) — The capital city Pennsylvania is broke and will be skipping this month’s multi-million dollar bond payment.

On Sept. 15, Harrisburg, Pa., was scheduled to make a $3.29 million payment on the bonds it issued to build a trash plant. But, the cash-strapped city doesn’t have the dough.

“The city’s budget is in deficit,” said Chuck Ardo, spokesman for Harrisburg Mayor Linda Thompson. “We’re looking for ways to trim the budget just to keep services going.”

“Now the chickens have come home to roost,” the mayor said in a statement released Wednesday.

In May, Moody’s knocked the rating on its general-obligation bonds three notches to B2 — five steps below investment grade. To put that into perspective: Moody’s rating on Greece’s government debt sits at A3 — still investment grade.

“It’s a warning to holders of bonds issued by financially stressed state and local governments,” said John Lonski, chief economist for Moody’s Investors Services. “Credit crisis is still with us.”

And in, fact, many on city council have been floating the idea of bankruptcy.

The worthies of Pennsylvania are, of course, claiming that if only they can raise taxes they could plug the whole. I guess they never heard of the Laffer Curve.

Harrisburg is not the only city in trouble obviously. This is just the first of many defaults to come, and the problem with that is that investors will begin to see municipal bonds for what they are: a bottomless money pit from which you will never get your returns. They are literally ponzi schemes where people make money by getting out before the last few suckers are left holding the bag.

If you’re in muni please do the research. There are very few cities which have the goods, financially speaking, and too many of them have financial problems that make them unreliable long term investments.

CNBC has a list of 12 cities that are the worst investments.

Market Watch has this to say about the default:

The decision by Harrisburg, Penn., to default on some of its general obligation bonds coming due raises questions for bond insurers more than municipal-bond investors, said Domenic Vonella, a municipal-bond analyst at Thomson Reuters. The city has well-known financing issues so it wasn’t a surprise that caused waves in Wednesday’s muni market, he said. Also, the bonds were insured, meaning investors will get paid anyways. But it could raise questions about how issuers choose which debt to default on — and if they favor defaulting on insured debt, he said. “The market wants some clarity on whether there will be some repercussions from insurances agencies,” though it’s unclear what those may include, Vonella said.

In a way Harrisburg was smart to be one of the first defaults because it can rely on the insurers to bail them out. Forbes’ Marilyn Cohen says the larger muni bond market may stay afloat, but not for reasons that will make most investors comfortable:

So with sales tax, income tax and property tax revenues declining, can we expect more defaults like Harrisburg, Vallejo and Central Falls Rhode Island?  As long as the municipal bond market continues to be so forgiving and allow refinancing and new issuance to come so cheaply—and—as long as the retail feeding frenzy continues, then defaults will continue to be rare.

And that’s not a sure set of circumstances. The article also speculates on what other major cities will default:

The City of Los Angeles – Former Los Angeles Mayor Richard Riodan has said in Wall Street Journal  editorials that the only way out of its financial difficulties is for the City of Los Angeles to file for bankruptcy sometime in the future.

The Metropolitan Pier & Exposition Authority of Illinois has seen revenue deterioration and according to Moody’s is “no longer able to meet debt service requirements and has caused the authority to tap into sales tax revenues.”  But all sales tax revenues throughout the county are deteriorating;  that’s not a sure safety net.

San Diego, CA, – San Diego’s name continues to float in and out of the bankruptcy banter but always loudly protests.

As more cities default bond insurers will be unable to pay everyone so if you’re investing keep that in mind.

Their release spends a lot of time crunching numbers, but I think the money quote is here:

There are now 50 million Americans on Medicaid, with annual Medicaid costs rising 36% over the past two years to $273 billion. The recently enacted health care bill will add 16 million more Americans to Medicaid beginning in 2014, but the U.S. government will likely go bust by then. It is impossible to have an economic recovery when jobless benefits are encouraging Americans to stay unemployed. U.S. unemployment insurance spending has nearly quadrupled since 2007 to $160 billion annually. Even food stamp costs have surged 80% over the past two years to $70 billion annually.

Once Americans get used to receiving and relying on government entitlement programs, it is hard to wean them off of them. NIA has been hearing reports from members with friends who say they will only “come out of retirement” if they can find a job that pays $25 per hour or more, because with anything less it wouldn’t be worth losing their jobless and food stamp benefits. Americans expect to receive their jobless benefits forever and we are sure Obama will continue to extend them leading up to the 2012 election.

There are now countless warning signs all around us on a daily basis that the U.S. is headed for a complete societal collapse. NIA received an overwhelming response from its members when we asked you to submit any signs you see that a societal collapse is near. The response we received was so strong that we are now beginning to produce a documentary about America’s upcoming collapse of society. The documentary will be over an hour long and we are hoping to release it by the end of October. It will go beyond the economic facts and statistics that were discussed in ‘Meltup’ and help expose the upcoming collapse from a real life perspective. NIA believes this documentary will appeal to a very mainstream audience and help open up the world’s eyes to the truth about the path this country is on.

Looking forward to the movie but their conclusion comes a little late. TEOTWAWKI has already happened, the world just hasn’t felt it yet.

h/t Survival Blog

The second part of Iris Canterbury’s new series on woodsrunning and survival aimed at women. I posted part I and I’ll continue posting her useful and tips:

This is the catalyst to the collapse coming. JP Morgan announced in a report that stores were sheltering customers from the food price increases in hopes of not losing customers, but that can only last so long.

Americans are still feeling the pinch though, partly due to factors not related to our economic troubles at all but they will accentuate them.

Via Refuge comes this little article that points out that almost all mainstream economists, including Keynesian cheerleaders like Paul Krugman, have admitted that we’re in a second Great Depression. But The Great Depression II is going to be worse than the first:

During October 2008, economist Fred Harrison  told the Foreign Press Association in London,”"The massive contraction in demand caused by this ‘wealth effect’ will condemn the western economy to a decade-long depression.”

Like some economists who alerted the Clinton and Bush administrations about the approaching economic crisis, Harrison warned future Prime Minister Gordon Brown of the looming financial danger when Brown was appointed Chancellor of the Exchequer in 1997. Brown, like Presidents Clinton and Bush, ignored the warning.

“Brown blames America for the global crisis. But every country in the world permitted property speculation, which is at the heart of boom/busts. Brown now defends himself by claiming that he tried to get global agreement on a stabilization plan. But he failed to tell the other governments about the tax reforms that could have prevented the crisis,” Harrison explained in his speech in London.

Two years later, more economists agree with Harrison. Such luminaries as Arthur Laffer and Paul Krugman are two. Although at the opposite ends of the political spectrum, both see dire times ahead for the United States: higher unemployment, a worsening of the credit crisis and housing slump, more loan defaults, more business failures and more foreclosures. Add to this economic witch’s brew the possibility of simultaneous currency deflation and inflation and you have every ingredient necessary for another extended Great Depression.

In fact some economists have begun using the term, Great Depression II.

Harrison concurs and believes that the situation has become so serious that whole nations could fail and something unseen in the West for hundreds of years could appear again: wholesale starvation of peoples in some Western countries.

But wait, if that didn’t make your stomach drop a little how about his section:

Finally, Robin Griffiths [http://www.financial-gurus.co m/gurus/9511/Robin-Griffiths/] devines the future economy from a technical market approach. Griffiths is a strategist at Cazenove Capital who recently shared with viewers of CNBC that “the world has entered significant financial depression.”

According to Griffiths “Equities are for losers and bond markets for winners. Equities are simply for people who like losing money,” Griffiths said.

“A double-dip is inevitable and imminent, as Keynesian stimulus measures have never worked anywhere. We are in the equivalent of a Great Depression following 3 years of credit crisis,” he added.

Griffith has taken a seat at the economic banquet of scarcity, austerity and gloom. The entrees at that table offer very slim pickings indeed: charts depicting a 20-year economic downturn; zero growth; possible additional contraction; massive unemployment, and the imminent collapse of governments globally.

If all that’s not enough, Griffiths points out that the United States’ shrinking M3 money supply now matches the average decline seen from 1929 to 1933.

Yeah, it’s getting bad out there. And even the people who make a living telling you it’s good are spreading the gloom.