Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don't force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot. Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you've still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn't a recession. This is collapse. -Skip- The internal composition of the US economic and financial system when it hit 2007/8 was very different than in previous recessions, even the severe recession of 1980/82. It's this internal composition that's now determinative, to the outcome. The sawdust of debt, and the monetization of assets rather than the production of goods, continually came to define the internal composition of the system. The economy cannot, therefore, express the same kind of resilience it has done so often, since WW2. This is the core problem of this collapse and why the prospect for recovery is dim. Americans can't actually rebuild the savings that the banking system needs to escape from the current mess. Individually, Americans are trapped by debt and cannot spend. In The Seigniorage Curse, I explain that one of the primary mechanisms for the hollowing out of the American economy over many years was the dollar advantage, which at first was earned. And then, came to be un-earned. By the time the US reached the 21st century, our primary manufactured product was debt, and dollars. Is it any wonder that once that system collapsed, that we quickly gave up 100% of the phantom job growth that had been sitting on top of the debt bubble? The current level of employment in the United States has now returned to the levels of June 2000. Enough said. -Skip- In Washington today the annual budget deficit crossed the one trillion mark. In Sacramento, there is a 26 billion dollar shotgun hole in their budget. (One hopes that CALPERS is marking to market, because if they're not, that would be a new liability for Sacramento to deal with). Meanwhile, Autumn approaches and whole range of rather nasty choices looms over the school system. Imagine living in a prime area of California and watching your house decline by 40%, your household income knocked for an initial 30%, and the after-school programs and town services get cut. Now throw some fees and tax hikes on top of that mess. For the coup de grace, imagine California voters sitting down each night to another wave of bailouts from Washington to financial corporations. Under those circumstances it seems quite unlikely Washington can say no, to the States.
-Skip-
The internal composition of the US economic and financial system when it hit 2007/8 was very different than in previous recessions, even the severe recession of 1980/82. It's this internal composition that's now determinative, to the outcome. The sawdust of debt, and the monetization of assets rather than the production of goods, continually came to define the internal composition of the system. The economy cannot, therefore, express the same kind of resilience it has done so often, since WW2.
This is the core problem of this collapse and why the prospect for recovery is dim. Americans can't actually rebuild the savings that the banking system needs to escape from the current mess. Individually, Americans are trapped by debt and cannot spend. In The Seigniorage Curse, I explain that one of the primary mechanisms for the hollowing out of the American economy over many years was the dollar advantage, which at first was earned. And then, came to be un-earned. By the time the US reached the 21st century, our primary manufactured product was debt, and dollars. Is it any wonder that once that system collapsed, that we quickly gave up 100% of the phantom job growth that had been sitting on top of the debt bubble? The current level of employment in the United States has now returned to the levels of June 2000. Enough said.
In Washington today the annual budget deficit crossed the one trillion mark. In Sacramento, there is a 26 billion dollar shotgun hole in their budget. (One hopes that CALPERS is marking to market, because if they're not, that would be a new liability for Sacramento to deal with). Meanwhile, Autumn approaches and whole range of rather nasty choices looms over the school system. Imagine living in a prime area of California and watching your house decline by 40%, your household income knocked for an initial 30%, and the after-school programs and town services get cut. Now throw some fees and tax hikes on top of that mess. For the coup de grace, imagine California voters sitting down each night to another wave of bailouts from Washington to financial corporations. Under those circumstances it seems quite unlikely Washington can say no, to the States.
So now we are at the point where the Govt is supposed to be bailing out States that refuse to help themselves. I know in my mind what should be happening, but I'm liberal left european and I know that such ideas as I have are meaningless that side of the pond. So it's gonna be "interesting" to see where this goes, but I bet an awful lot of people will suffer who really don't deserve it. keep to the Fen Causeway
As well, let's not forget also that from Reagan on, in order to keep from bankrupting the national government with their war budgets, the republican presidents kept passing more and more expenses and mandates onto the states. Then the republican governors piled on with prison expenses and their own interstate graft. That there was a problem with getting tax money for their scams was just a subtle twist of the knife.
Corporate Socialism is the problem. That there is graft, and aggravating minor players pretending to be Congress-critters who cater around the edges to their thumb-sucking constituents, is just an inconsequential cost of doing business...but it is not what pushes the cycle of cultural bust and more cultural bust. Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
From direct democracy to direct federal financial rule in California
The obvious penalty to discourage recidivism is to impose direct financial rule by Washington over the state of California in exchange for fiscal financial support for the state of California from the federal government. That is what happens with municipalities and counties that go or are about to go belly up financially and that turn to the state government for financial support. It is what happens in other federal systems when a state government knocks, cap-in-hand on the back door of the federal Treasury, begging to be rescued. Direct financial rule would mean that neither California's state executive nor the its state legislature would have any financial decision making powers until financial normalcy is restored. California's `proposition mechanism' would also be suspended for any proposition that would have financial implications for the state. A federally appointed Board of Overseers would have full powers to cut public spending, raise existing taxes or introduce new taxes or charges until the budget deficit has been eliminated in a sustainable manner. Such direct financial rule reduces the state of California to a legally and financially incompetent minor. Because that is exactly the way the state has acted and continues to act, this is both efficient and fair. The only irony is that this direct financial rule rule would be excised by an entity appointed by a federal government that itself is structurally incapable of putting its fiscal house in order. But that is an irony Californians will have to learn to live with. Beggars can't be choosers.
Direct financial rule would mean that neither California's state executive nor the its state legislature would have any financial decision making powers until financial normalcy is restored. California's `proposition mechanism' would also be suspended for any proposition that would have financial implications for the state. A federally appointed Board of Overseers would have full powers to cut public spending, raise existing taxes or introduce new taxes or charges until the budget deficit has been eliminated in a sustainable manner.
Such direct financial rule reduces the state of California to a legally and financially incompetent minor. Because that is exactly the way the state has acted and continues to act, this is both efficient and fair. The only irony is that this direct financial rule rule would be excised by an entity appointed by a federal government that itself is structurally incapable of putting its fiscal house in order. But that is an irony Californians will have to learn to live with. Beggars can't be choosers.
ChrisCook:Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you've still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn't a recession. This is collapse.FT.com: From direct democracy to direct federal financial rule in California (Willem Buiter's Maverecon, July 13, 2009)The state still services its outstanding stock of official debt with cash, which is why no formal event of default has been called yet, but de-facto California has already defaulted on its financial obligations and commitments by paying suppliers and employees with funny money rather than with cash. When the banks stop accepting the IOUs except possibly at massive discounts, which will happen soon unless an early resolution of the budgetary stalemate is achieved, the state of California will close down for business. Municipalities and counties dependent on state funds will follow suit. Before long the teachers won't teach, the fire fighters won't fight fires, the police won't maintain law and order and neither garbage nor taxes will get collected. It will be a grand Hobbesian experiment.Energy Bulletin: Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US (Dmitry Orlov, December 4 2006)My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse. The rhetorical device I am going to use is the "Collapse Gap" - to go along with the Nuclear Gap, and the Space Gap, and various other superpower gaps that were fashionable during the Cold War....The subject of economic collapse is generally a sad one. But I am an optimistic, cheerful sort of person, and I believe that, with a bit of preparation, such events can be taken in stride. As you can probably surmise, I am actually rather keen on observing economic collapses. Perhaps when I am really old, all collapses will start looking the same to me, but I am not at that point yet.And this next one certainly has me intrigued. From what I've seen and read, it seems that there is a fair chance that the U.S. economy will collapse sometime within the foreseeable future. It also would seem that we won't be particularly well-prepared for it. As things stand, the U.S. economy is poised to perform something like a disappearing act. And so I am eager to put my observations of the Soviet collapse to good use.
Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you've still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn't a recession. This is collapse.
The state still services its outstanding stock of official debt with cash, which is why no formal event of default has been called yet, but de-facto California has already defaulted on its financial obligations and commitments by paying suppliers and employees with funny money rather than with cash. When the banks stop accepting the IOUs except possibly at massive discounts, which will happen soon unless an early resolution of the budgetary stalemate is achieved, the state of California will close down for business. Municipalities and counties dependent on state funds will follow suit. Before long the teachers won't teach, the fire fighters won't fight fires, the police won't maintain law and order and neither garbage nor taxes will get collected. It will be a grand Hobbesian experiment.
My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse. The rhetorical device I am going to use is the "Collapse Gap" - to go along with the Nuclear Gap, and the Space Gap, and various other superpower gaps that were fashionable during the Cold War....The subject of economic collapse is generally a sad one. But I am an optimistic, cheerful sort of person, and I believe that, with a bit of preparation, such events can be taken in stride. As you can probably surmise, I am actually rather keen on observing economic collapses. Perhaps when I am really old, all collapses will start looking the same to me, but I am not at that point yet.And this next one certainly has me intrigued. From what I've seen and read, it seems that there is a fair chance that the U.S. economy will collapse sometime within the foreseeable future. It also would seem that we won't be particularly well-prepared for it. As things stand, the U.S. economy is poised to perform something like a disappearing act. And so I am eager to put my observations of the Soviet collapse to good use.
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The subject of economic collapse is generally a sad one. But I am an optimistic, cheerful sort of person, and I believe that, with a bit of preparation, such events can be taken in stride. As you can probably surmise, I am actually rather keen on observing economic collapses. Perhaps when I am really old, all collapses will start looking the same to me, but I am not at that point yet.
And this next one certainly has me intrigued. From what I've seen and read, it seems that there is a fair chance that the U.S. economy will collapse sometime within the foreseeable future. It also would seem that we won't be particularly well-prepared for it. As things stand, the U.S. economy is poised to perform something like a disappearing act. And so I am eager to put my observations of the Soviet collapse to good use.
A lot of its revenue has been earmarked for particular purposes (as a sweetener to get taxes approved by a referendum) so that the general fund available for discretionary expenditures is very small. There is hardly any leeway to shuffle money among budget categories. The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
There are very way too many very way too rich people in the state to allow that to happen. Never underestimate their intelligence, always underestimate their knowledge.
Anything essential is earmarked to prevent the insane political ideologues in Southern California from using the state budget as a social experiment any more than they already have.
This is why it is typically best to ignore the state when they whine yearly about "going broke" and "catastrophic cuts" because they're really only talking about a very small $% of the budget.
The real issue that is coming to head this year is of course the lack of revenue due to not collecting nearly enough taxes on property. This is just the kind of catastrophe necessary to bring "prop 13" back into the discussion.
I linked to that blog recently...
