Ed Morrissey notes a 60 Minutes report about the bankruptcy of our States – that the Day of Reckoning is here. This might have come as a shock to some, but not to me and not to anyone who read this blog, or Noonan for Nevada. I’ve been talking about this for months – but I freely admit that I got my first good look at this issue over at Mish’s Global Economic Trend Analysis as well as some of the articles over at Zero Hedge (both sites have oddball views on some matters, but both also have a highly realistic attitude on economic affairs; I trust economic stuff from them far more than, say, MSNBC or the Wall Street Journal). Some samples of what I’ve been writing about are here, here and here. Nice to see that the MSM is finally picking up on this story – a year or so behind the curve, but what else can we expect from them?
The States have, quite simply, spent themselves in to oblivion – and not only are most of them facing deficits (and some of a quite crushing nature), they’ve also got massive, unfunded liabilities in the form of over-generous pensions to some of the State employees (our cities and counties have similar problems). As Governor Christie puts in the video linked by Morrissey, “we literally don’t have the money” any longer. Its all gone – everything is wrecked and no matter how painful it will be, gigantic cuts in spending will be required.
In fact, the cuts really needed to happen a year or two ago – but various federal bail outs allowed the States to paper over their fiscal cracks and kick the can down the road. The problem is that now its all much worse (more unemployed for a longer time with spreading poverty putting increasing pressure on State and local expenditures at a time when revenues, at best, are just holding steady after precipitous declines) at a time when no more bail outs will be forthcoming – the new GOP-led House simply will not vote themselves in to political suicide by bailing out State and local government.
For some States, this won’t be all that horrible – those States which now have Republican governors coupled with total or partial control of the State legislature by the GOP. It will be a hard road for such States, but they’ll just make the difficult cuts and get on with it. The real problem will come in with those States under Democrat governors coupled with total or partial Democrat control of the legislature – Democrats simply will not want to cut. We can expect that they’ll try various gimmicks to dodge the bullet (the most entertaining bit of this, I think, will come out of California where, God bless the poor people of California, Jerry Brown and the Democrat legislature will try to cover a $28 billion shortfall), but it will avail them nothing. Crunch time is here – you might be able to buy yourself 6 months or a year by fiscal hocus pocus, but no more than that.
We’ll see how this comes out – whether they get it together, or spiral out of control in to our own versions of Greece. The bad news is that the budget cuts will make another hit on employment in America, thus dragging down the economy as a whole, at least in the short to mid-term (economists who are predicting a solid economic rebound in 2011 are either trying to run some sort of scam, or smoking crack). 2011 will be a long but very interesting year – and I have to say, I’m more worried about our economic prospects now than at any time in my life. I wonder if I’ll have a job by next Christmas – or, indeed, if any of those I know will.
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