States as Zombie Economies
David P. Goldman (aka Spengler) has a neat piece at his financial blog, Inner Workings. He points out that many state governments are about to face huge deficits (like California's gargantuan $21 billion hole) and will run into political disaaster galore as Republicans seek cuts and Democrats (backed by public sector unions) push to retain spending. Can President Obama and the federal government ride into the rescue? That will be a major question moving forward and will largely determine whether America at large can begin to live within its means.
Here is a sample of the posting,
"Far more worrying for the US economy, I said on the Feb. 5 Kudlow broadcast, is the $200 billion deficit of state governments. There will be a dozen California-style crises this year, exacerbated by public-sector employees’ unions who form the core of the Democratic party constituency. Obama will try to bail them out; the Republicans will resist; the unions will take states to the brink of bankruptcy and over it; and markets will repeat the mini-panic of the past few days.
Here is a sample of the posting,
"Far more worrying for the US economy, I said on the Feb. 5 Kudlow broadcast, is the $200 billion deficit of state governments. There will be a dozen California-style crises this year, exacerbated by public-sector employees’ unions who form the core of the Democratic party constituency. Obama will try to bail them out; the Republicans will resist; the unions will take states to the brink of bankruptcy and over it; and markets will repeat the mini-panic of the past few days.
One of the most important but least-noted items in Friday’s employment report was the loss of 41,000 state and local government jobs. Real estate and related tax revenues bulked up local government spending during the boom, and how they are unsupportable. This is old news, but the market is more in need of reminder than instruction. The reminders will come frequently enough."
This is going to get a lot, lot worse later in the year and all through 2011 when the adjustable rate mortgages are beginning to reset across the board and we'll see government debt default (by the way, not for the first time in US history). Recovery? What recovery?
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