No State Prosperity = No National Prosperity

One thing that I watch closely is the health of the finances of the states. Because they don’t have a printing press, and most of them have to balance their budgets, they are a better read on the health of the economy than national statistics.

As it is, states are cutting their budgets drastically because their tax collection is down dramatically. California is a leading example here. Will it refuse to pay, and what of its municipalities? How many will file for Chapter 9, like Vallejo? My guess is that many municipalities will file Chapter 9, but that California will avoid nonpayment.

There is one more issue worth pursuing here. Though states have to run balanced budgets (largely on a cash basis), that says nothing about pensions and other long-dated promises. I find it fascinating that some states are still trying the gambit of pushing retiree expenses out into the future. To me, that is a sign of desperation slightly smaller than making significant budget cuts. It’s just playing for time at a time where delay has few advantages.

That’s one reason among many that I do not see “green shoots” at present. During a period of debt deflation, many troubles fight prosperity as the financing bubble deflates. If the states aren’t prospering the nation is not either, regardless of what statistics the national government might dream up.

Comments

[conceptwizard:]

The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.

Jun 22 09:54 AM

[whidbey:]

Strange you did not mention the 15% California adds to the national economy, or the fact that your caveat on retirement applies in spades to the cities and towns of the state. California can cripple the national economy all by its self. Too big to fail? We will see.

Jun 22 10:05 AM

[PastTense:]

"The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners"

Conceptwizard: It is not possible to have negative equity for the roughly one third of homeowners who are mortgage free.

Jun 22 11:53 AM

[Socialism c...:]

Agree with what you say we will see. But much of that has been happening for years already. Let's not confuse cause and effect here -- it is the moral decline of America that you describe, but that is the largest *cause* of this economic and social collapse, not the result of a collapsed economy. To the extent that economic downturn worsens it, that is a spiraling, reinforcing effect. The way out is NOT ever-larger government and big-spending "stimulus" packages, but smaller government and personal responsibility -- which can only happen when personal morals are restored. This sometimes happens when hard times come...but is never painless. And certainly a good many will refuse the call to personal change, unwilling or unable to give up their hedonism, preferring instead to prey upon those weaker than themselves in order to perpetuate their dim existence.


On Jun 22 09:54 AM conceptwizard wrote:

> The cost of daily living, from buying food to getting medical care,
> will become difficult for all but a few as the dollar plunges. States
> and cities will see their pension funds drained and finally shut
> down. The government will be forced to sell off infrastructure, including
> roads and transport, to private corporations. We will be increasingly
> charged by privatized utilities—think Enron—for what was once regulated
> and subsidized. Commercial and private real estate will be worth
> less than half its current value. The negative equity that already
> plagues 25 percent of American homes will expand to include nearly
> all property owners. It will be difficult to borrow and impossible
> to sell real estate unless we accept massive losses. There will be
> block after block of empty stores and boarded-up houses. Foreclosures
> will be epidemic. There will be long lines at soup kitchens and many,
> many homeless. Our corporate-controlled media, already banal and
> trivial, will work overtime to anesthetize us with useless gossip,
> spectacles, sex, gratuitous violence, fear and tawdry junk politics.
> America will be composed of a large dispossessed underclass and a
> tiny empowered oligarchy that will run a ruthless and brutal system
> of neo-feudalism from secure compounds. Those who resist will be
> silenced, many by force. We will pay a terrible price, and we will
> pay this price soon, for the gross malfeasance of our power elite.
>

Jun 22 12:11 PM

[peterthepai...:]

"...but that California will avoid nonpayment."

how?

Jun 22 12:35 PM

[VP of Commo...:]

Why so bullish? *Sheesh*


On Jun 22 09:54 AM conceptwizard wrote:

> The cost of daily living, from buying food to getting medical care,
> will become difficult for all but a few as the dollar plunges. States
> and cities will see their pension funds drained and finally shut
> down. The government will be forced to sell off infrastructure, including
> roads and transport, to private corporations. We will be increasingly
> charged by privatized utilities—think Enron—for what was once regulated
> and subsidized. Commercial and private real estate will be worth
> less than half its current value. The negative equity that already
> plagues 25 percent of American homes will expand to include nearly
> all property owners. It will be difficult to borrow and impossible
> to sell real estate unless we accept massive losses. There will be
> block after block of empty stores and boarded-up houses. Foreclosures
> will be epidemic. There will be long lines at soup kitchens and many,
> many homeless. Our corporate-controlled media, already banal and
> trivial, will work overtime to anesthetize us with useless gossip,
> spectacles, sex, gratuitous violence, fear and tawdry junk politics.
> America will be composed of a large dispossessed underclass and a
> tiny empowered oligarchy that will run a ruthless and brutal system
> of neo-feudalism from secure compounds. Those who resist will be
> silenced, many by force. We will pay a terrible price, and we will
> pay this price soon, for the gross malfeasance of our power elite.
>

Jun 22 04:43 PM

[Moon Kil Woong:]

Quaduse...: LOL good point. GS is creating a bubble in bonuses to itself. Dole as much as you can out before you go begging for money again. Their bonuses would be 0 without the siphon of government money from AIg directly onto their paychecks.

As for California: the state hasn't had a real balanced budget for years and personally I don't see how it can avoid financial catastrophe next year. They are already spending municipal property tax money to float their losses. There's not many places left for them to go to get money for cash flow and their Constitution constrains them from cutting spending (98% of it is Constitutionally required outlays).

I suppose they can save some by letting all the gangs out of jail as well as all the people in jail for minor drug offenses (who may now have learned careeer criminal 101 skills from crips and bloods in prison). California is in deep trouble and that spells continuing trouble for the US economy as a whole.

David Merkel is right about State and municipal weakness hurting the economy. As they say, "All politics are local. The same goes with economics." If mirco-economics are unhealthy it stands to reason macroeconomics must also be unhealthy.

Jun 22 10:40 PM

[OldNavySailor:]

Here in New York, the teachers' union continues to exert its political influence on the political elitists who accept campaign bribes to stay in office.

700 teachers are paid their full salaries while they wait for administrative hearings on the merits of their dismissal from the schools. This union concession is costing New York taxpayers $65 million fiat dollars per year (see the following article
www.huffingtonpost.com... )

Ain't socialism grand!!

Jun 23 12:38 PM

[BerkeleyBob:]

The central point is that the fiscal health of the states and local entities can not be considered in isolation to the fiscal health of the national government. True, the latter has the ability to run a deficit or print money. True, California's issues have been brewing for some time and can not be deferred much further. In a larger sense, the issue is the fiscal relationship between all levels of government--who wins, who loses in terms of revenue and taxation? I feel sorry for Gov. Schwartzenegger, who gives every impression of floundering.

Jun 23 02:05 PM

[W.E. Heasley:]

As it is, states are cutting their budgets drastically because their tax collection is down dramatically.

Hmmmmm. Maybe not. Try this........

You likely have this backwards.

Revenues increased for States due to higher taxes and higher fees based on a reasonably robust Economy between 2001 and 2007. Approximately 1/3 of the State Legislatures spent the revenue wind fall and then floated bonds to boot.

Now the States can not fund the bill.

Classic case of over spending for Political Reasons.

Now everyone is "surprised"!?!?

What a shocker!

Jun 23 09:44 PM