Zero Hedge recently highlighted the ever increasing Federal outlays on unemployment insurance, leading to questions on whether the true unemployment rate, as indicated by actual cash outlays, may be materially higher than indicated in increasingly dubious governmental reports. One proposed alternative has been that the Federal government is directly subsidizing standalone states' depleted unemployment insurance trust funds. Using data provided by ProPublica we have been able to confirm that indeed standalone states are for the most part now bankrupt and have no reserves left in their coffers when it comes to funding ever increasing insurance benefits. As ProPublica indicates, there are now 26 states which have depleted their trust funds, among these are the usual suspects including California, Michigan, New York, Pennsylvania and Ohio, which now rely exclusively on borrowings from the Federal government to prevent the cessation of insurance payments to recently unemployed workers. Currently all states collectively posses $10.7 billion in trust fund assets(with the bulk held by less impacted states such as Washington ($2.6 billion), Louisiana ($1.1 billion) and Oregon ($1.1 billion). On the other hand, 26 states currently rely exclusively on the Federal Government, and have borrowed a combined $30 billion through December to fund payments. ProPublica estimates that another 8 states will be insolvent within 6 months, as their trust funds also approach 0.
The chart below demonstrates the amount of borrowing per state, as well as trust fund holdings.
Another way of visualizing the damage can be seen on the following chart which highlights
The most bankrupt states are California, with $6.8 billion in borrowings, Michigan ($3.4 billion), New York ($2.4 billion), Pennsylvania ($2.2 billion) and Ohio ($1.9 billion).
A chart demonstrating the collapse in California's trust fund, coupled with the relentless increase in the state's unemployment rate, together with Benefits paid out and actual Revenue gained (if any). Note that the April/May tax revenue collection spike, unlike in prior periods, did nothing to boost the trust fund in 2009.
So what is happening on the Federal side of the ledger? Recall that in December the government spent $14.65 billion in Unemployment Insurance Benefits, which was a 24% jump from the $11.8 billion in November. How is January shaping up? Through January 28th, the Federal Government had spent a total of $13.85 billion for this outlay. Once we get the Friday additional data, we will update our previous chart" we expect the final number to be about $14.1 billion, roughly in line with the December total.
At this point there is no question that the vast majority of the hardest hit states now subsist exclusively due to the generosity of the Federal Government, which in turn, courtesy of a 50%+ indirect take down of each and every Treasury auction (now that QE is over), is at the full mercy of foreign investors, yet as we pointed out, their custody holdings at the Fed have started declining. If the government is unable to finance its profligate ways, and today's budget announcement by Obama is just the icing on the cake, look for states to gradually reign in unemployment checks whether they like it or not, which would likely lead to some very interesting demonstrations of the broader population's lack of solidarity with Mr. Blankfein's $100 million, or whatever it may end up being, bonus number. Our advice to California readers who believe they are owed a refund: file your taxes ASAP - the market for IOUs still has to be properly securitized by JP Morgan.