Gregor, never have I seen a more apt demonstration of "a picture is worth a thousand words" than that Obama picture and its juxtaposition in this post. Well chosen.
-benjie t.
gregor.us
· 4 months ago
That was rather dastardly of me, wasn't it? I couldn't resist. Cheers.
G
BrianMc
· 4 months ago
Adding the state's debts to the federal total is the final nail in the coffin to our republic. There is no one left to stand up to Washington after that, just a long (well less long than I ever imagined I'd see in my lifetime) march to totalitarianism. Take the crisis now, or take a worse crisis later, make no mistake, the American Social Contract is broken, and the crisis will come.
gregor.us
· 4 months ago
It is indeed getting more difficult to see how this ever resolves, without some sort of social dislocation that at least mirrors in shape (if not size) the systemic dislocation seen already. Generally, a crisis is not really a crisis unless the old order is swept away.
G
steve_from_virginia
· 4 months ago
Another variation on the theme of debt. What can Washington really do? Conjure more debt itself; that game is also 'wearing thin'.
The outcome cannot be 'good' in the sense that any kind of normalcy - in the 'Leave It To Beaver' sense of the term, only a tremendous dislocation. This is inevitable. Federal intervention is a charade.
It the 'change' government would really think outside the box, by embracing small and reining in the banks - and take back its power to create money from the Federal Reserve and other banks, the transition would be useful. There would be pain ... but this is unavoidable.
The outcome of a society built on waste ... is what we are experiencing right now. Let the deleveraging begin!
gregor.us
· 4 months ago
There are no good answers. Currently I am working on a mass debt jubilee idea which even I find outrageous. But, I do have to probe forward and wonder that the only escape is some sort of mass debt forgiveness.
G
BrianMc
· 4 months ago
Where we are at now seemed outrageous in 2006, don't discount an idea on such flimsy conventional wisdom. The crisis is coming, no way to avoid it, the old order will be swept away. The trillion dollar question is what will replace it, and how far into the abyss will we sink before winter turns to spring? Debt Jubilee is on one end of the spectrum, neo-feudalism the other. Ancient Athens saw the majority of its population become serfs before Solon was able to bring about Seisachtheia. In our last crisis it took a massive depression and total global war to normalize the division of income and get the elites to remember that they need to share or everything breaks down. I hope that it doesn't have to come to that this time around, but national income is more skewed to the elites than it was at the onset of the last crisis, so that hope is faint.
ohgod
· 4 months ago
It is not just the elites' income that went up. We went and demanded and got paid ourselves a lot, decided not to work (and collect unemployment insurance, welfare etc.) when we were not getting the asking and instead became the masters of the illegal immigrants. It all made sense when we were on top of the world; can dictate how much each country should charge for their natural resources and man-made goods; how much their currency should be worth (through IMF etc.) and what the interest rate in those countries should be. In that process we became too fat (figuratively speaking) and arrogant and thought the God owes us everything. Just as one example, how on earth one could have the privilege of a 30 year mortgage at a guaranteed interest rate (which has been very low and subsidized by the foreign elite who steal from their countries) and at the same time get out of it with no penalty (does not make sense from a business perspective). Of course, we did not pay off our loans to get out of the mortgage (in that case the elite bankers would not have given us that provision), but simply rolled it into a new mortgage with higher loan that made us spend like rich and the elite pocketed the fees (Did anyone question for example the idea of paying for title insurance which they already had before refinancing?)! The foreign elite provided (and to certain extent, they still) us our good times that we had so far by keeping their stolen wealth in dollars and it can't go on for ever. Our children and their children are going to pay for our greed.
BrianMc
· 4 months ago
"It is not just the elites' income that went up. We went and demanded and got paid ourselves a lot"
This is incorrect. (I'll never understand the part of the human psyche that hates itself and roots for its enemies, but I digress) The top 10% of US earners now take ~50% of the National Income, that is more than even 1929! Real wages for the middle class have declined or remained flat every year for more than a generation. Per capita GDP is higher now than ever before, the problem is the distribution.
Macro economists, who are nothing more than well paid academic shills for the establishment call it a failure of effective demand, in English that can be translated to: everyone is broke because a small subset of the population is driven to acquire and hoard wealth to the detriment of everyone, including themselves.
ericgarland
· 4 months ago
"We" got paid in a vast wealth of increasingly-Asian made consumer goods, falsely-inflated real estate, and slightly enhanced salaries, from which we paid lower inflation-adjusted income and the highest worker productivity and least leisure time in history.
"They" got paid in cash, real estate titles, and stock, the fastest concentration of wealth in history.
But hey, the iPhone is COOL. It's worth reducing paid maternity leave down to six hours, am I right?
gregor.us
· 4 months ago
I hope that you always include, and don't erase, your quips from your pulbic presentations because they are very sharp, funny, and nearly always make your point.
Sarcasm is the new Analysis, baby!
G
Crude Oil Trader
· 4 months ago
I will have to quote [hopefully with your blessing].....Sarcasm is the new analysis. Love it!
steve_from_virginia
· 4 months ago
" ... and wonder that the only escape is some sort of mass debt forgiveness."
Which could only take place after loans are manifestly uncollectible, anyway.
The establishment would always remain in control - a devaluation or series of them would accomplish much the same thing. To a quadrillion- dollar economy, ten or twenty - or a hundred trillion in obligations is a bagatelle. The trick is to jump from the current exponential situation to a generally logarithmic background - a steady state qradrillion dollar economy.
The obstacle would be energy costs and the downstream effects of devaluation (Saudi Arabia's dollar reserves would be .1 cent reserves and I doubt if they would like that very much. Beggar thy neighbor! They would have to sell to us, anyway but $1,000 of oil would become $1,000,000 (and probably much more) oil. The debts can be erased but the ongoing erosion of commerce would be unaffected because of the steady and ongoing increase in relative energy costs.
I recall an article in the Wall Street Journal opining about using two distinct US currencies in parallel. I thought this was pretty radical thinking for the WSJ, but with the California 'Obama' on the horizon ... why not?
Take a cue from GM bankruptcy 'procedure' and have a 'Bad' dollar, to be used for all debts past and present and a 'Good' dollar to be used for everything else. Godspeed, bad dollar!
Just what we knew all along. The Fed is a (cheap) money- laundering operation. All that is missing is harlots.
Ironically, the big underlying problem isn't the broadly nationalized credit but high energy prices. The bubble disguised the need for extremely cheap inputs, importantly crude at rock bottom - sub $40 - prices. It's @ $60 now ...
OUCH!
Credit here is irrelevant since money cannot put more oil into the ground, only make it disappear faster above it. Self- defeating hardly describes the situation. Uhhhh ... er, where's the leadership?
There may be no quick answers, but there IS an easy answer: Americans need to produce more. Americans need to work harder, make more goods more productively and stop wasting things. Unfortunately, many people don't know what waste and production are. For example, bottled water is a pure dead loss to society. A glass of tap water costs society $0.0005 (5/100 of a cent) while the same amount of tap water costs society $0.10 to $0.25 depending on the market. "Producing" bottled water is really tearing down the economy.
The recession is helping reacquaint people with what true savings and true waste are. This is important because they were forgetting. If you bail out California, and other states, they will never learn, and things will get much worse than they are now.
gregor.us
· 4 months ago
I would point people to the various articles and research that suggests no combination of tax increases, or growth, can possibly catch the debt now. The debt has reached escape velocity.
Hamilton at UCSD alludes to the likelihood that we can't catch the debt now.
It's not called debt forgiveness. It's called bankruptcy, and it's the usual end to speculation and bubbles. Citigroup, Bank of America, etc., are overextended and should be allowed to fail. Instead, taxpayers are bailing them out. This is unprecedented. The dot-com bubble wasn't bailed out. The railroad bubble wasn't bailed out. The Wall St bubble of the 20s wasn't bailed out. I get that allowing bankruptcy will collapse the economy. But those of us on the bottom are screwed either way.
Jonathan Ryshpan
· 4 months ago
But it's more likely that California voters will insist on no more bailouts for large corporations than on a bailout for themselves. If they get their way in this, as is likely, the results are not easy to see.
inegoveritas
· 4 months ago
One option out there I am seeing but is rarely discussed in the media is a massive cut in the defence budget. Get out of Iraq and Afghanistan first. Then, cut the defence budget by half (it would still be more than any country) effectively putting some of the US military power in hibernation. Bail out the states and any other urgent matters with the extra money. It is time to make the military-industrial complex pay its share of the tab. During the hibernation, the US would have to lean more on the international community for its peace keeping operation. There are plenty of ways to do this but it wouldn't be relevant to discuss then here.
gregor.us
· 4 months ago
I didn't quite suggest this but I did predict it, earlier this Winter. Of course, there is a potential Keynesian problem in that if one reduces defense spending now, it simply adds up to more contraction in the economy. But, we might as well suck it up. I agree that we are probably long since past the time when the US military budget, which frankly seems like it's still carried at post-war scale, could use some downsizing. Better to do it voluntarily than have to do it by necessity in further financial crisis.
G
rossgreenspan
· 4 months ago
What is the catalyst for social dislocation? Partial international loss of confidence in the dollar?
Do you see a crisis of confidence in the USD if the government starts back-stopping the states with newly printed money?
General consensus among the Unwashed seems to be a wait for the turn, trust the Government. What is going to be the signal for people that this is not garden variety recession, but a type of economic collapse?
gregor.us
· 4 months ago
See the posts from BrianMC upthread.
G
ericcb
· 4 months ago
Well, the quick and easy way is to get cheap energy to heal the system. Regular gas here in SE Pa is still at about 2.50 per gallon. They get it below a buck and the consumer will drive more and be able to spend more. The state tax systems are built around consumption. Liquid fuel tax, sales tax on dining out etc. The Feds giving to the states is just taking from one pucket and putting it in another. Won't solve a thing in the long run. I prefer a variation of your debt forgiveness thing Gregor. Give every taxpayer 150K in stead of just debtors. Us guys who saw this coming and got/stayed out of debt deserve something too. Everybody gets to spend his 150K how he wants. Pay down debt, buy stuff to stimulate the economy, put it in the bank. I'll be the guy standing behind you at the precious metals counter buying gold. lol
gregor.us
· 4 months ago
Yes. A 150K for every tax paying adult. Then combine it with new federal limits on credit creation, fractional reserve banking, and limits on personal credit extension. It would be like a mass, societal mea culpa. And then we move into a Slow Growth era. And just as you say, those not in debt get 150K too. But again, restraints would be needed to discourage consumption. Under this type of plan, public policy would move down the spectrum towards Savings. That would be a huge change to American culture.
I am open-minded on this stuff, and largely neutral. Generally I advocate ideas that will work and reduce suffering. I'm not big on moral hectoring and making people pay too much for their mistakes. However, on the other side of that equation, I agree that chaos and hazard increase if people are trained that their mistakes will have few penalties.
It's a mess. All the solutions so far are a mess. I would at least like to see a discussion of a debt jubilee, with a 150K credit to all, and then new onerous credit creation restrictions, and balanced budget laws both at Federal and State levels.
Bottom line though is that I have few solutions.
G
IRON100
· 4 months ago
Great piece. Even SC has a debt crisis, so much so that Gov. Sanford who used such bravado fighting the stimulus payment acceptance, knew the SC Supreme Court would overrule him and said BEFORE the ruling that he would not fight it at the Supreme Court level. He simply was more worried about an Argentine love interest than he was holding a convention to end the overwhelming dominance of the legislature brought about by the Reconstruction-era rewriting of the state constitution. His true effect on state spending has been nil, and no one in power now cares. They are too busy spending this little state into oblivion just like California's legislature is.
SC is exploding government expense at 13 percent per annum on the back of bloated state workers' and teachers' pensions and every state representatives pet projects that no representative can turn down. As there is neither an effective executive branch of state government to stop it nor a judicial branch of government that has not been bought off to stop it, the inevitable train wreck is going to occur.
I still believe that individuals within their states need to fight the pork that its legislatures continue to profligate, but that may only slightly dampen the damage that is coming to the value of our currency. I am afraid the population is far too addicted to spending to end it.
gregor.us
· 4 months ago
On a purely human behavior and psyh. level, I remain fascinated that Sanford took a big political stand against spending largesse and called upon the ethos of restraint, given what was occuring in his personal life. As a general point, we know that sex and money are two areas where human behavior can get, uhm, very unrestrained. You know, the whole issue of human Appetites, in general.
More importantly, and more to your point, it would be a shame of this crisis does not force a radical shift in spending behavior in government(s). It will have been a waste if we don't finally confront the age-old achilles heel of democracy--which is that eventually the electorate votes itself tax cuts and spending increases--to ruin.
G
ericgarland
· 4 months ago
California is showing the symptoms of a much bigger disease. So much of our national economy has been based on abstraction and extraction. Abstract dot-com feelgood stock price increases were supposed to somehow finance the awesome needs of the Baby Boomer retirement. When that turned out to be fraud, we juiced the system with abstract securitized mortgage fakery. Meanwhile, we sent our skilled jobs to India, built our suburbs in the least energy-efficient way possible, and began extracting value out of every ecosystem, company, brand, and person possible.
I'm on Gregor's side. This is the end. The end of a value-destroying system, one that abhors connection and culture and iterative wealth creation. The beginning, however painful, of a return to smaller, more limited, more human-scale endeavor that will actually produce value for people.
But first, the pain of dismantling the old institutions, at the end of their life cycle.
gregor.us
· 4 months ago
I suspect the crisis will not complete, until the old order is swept away. Alot has to fall. Products, practices, ideas, and the clownish and cynical people who run so many of the nation's institutions. It's not just govt and business. It's media, and academia too.
I think the proper stance to take now is as follows, to say : "Your ideas suck, your solutions suck, your products suck, your media and your writing suck, your beliefs suck, your infrastructure sucks, and your priorities suck."
Heh. Get yer revoution on. (so to speak)
G
ericgarland
· 4 months ago
What the hell happened such that petroleum industry analysts, venture capitalists, and competitive intelligence dudes started sounding like the College Anarchists Society? But hey, when nothing works in an even remotely rational sense, what else can you think?
Seriously though, how long has it been like this? Was stuff this messed up in the 80s and 90s and I didn't notice?
Toby
· 4 months ago
I disagree on the necessity of state bailouts. Bloated, rich state bureaucracies are the very ones that need the job cuts that the prospect of no bailout brings.
Did you know that the big mass transit systems in CA have budgets about 10 times ticket sales? Amtrack is about 3.5x, last I looked. Since CA residents and business pay more in Fed taxes than they get in return, Federal money may cost residents 5% more than CA receives.
gregor.us
· 4 months ago
I do think it will be interesting should we get far enough down this road, that Californians become more aware of the revenue balance between Sacto and DC. This dynamic is definately on my mind.
As for transport systems, the proper way to analyze their economic benefit or liability goes way, way beyond fare revenues. My position now is that the California Freeway system is a bigger productivity and liability sink, than any CA public transport. You have to look at all-in costs. Take a look at what the state has to spend to maintain the very inefficient highway transport system.
G
ericgarland
· 4 months ago
What do you think of the future of states like Vermont (my home state) which are addicted to Federal money, shedding jobs as fast as they can, and making zero plans for the future?
They will soon be just as broke as California, with no industry, and an a median age in some counties of 61 YEARS OLD.
If California can't do it with surging, young, dynamic populations and lots of talent, how will the others fare?
gregor.us
· 4 months ago
I have an ongoing conversation with @nelderini about which constraints to solve for, when gauging which States in the union might be best for making one's home. A kaleidescope of answers are continually spit out, from this dialogue, depending on whether one solves for: Water, Arable Land, Transportation, city sizes that actually allow for decisions to get made/to get things done, Oil and NG resources, Days of Heating/Cooling, Access to Waterways, Education Levels, Balance Sheets.
Perhaps we should plug you in, to the next call.
G
ericgarland
· 4 months ago
@rewealth is doing great work on this. Check www.placestoinvest.com - He has an actual methodology for assessing which places (not necessarily states or countries) are most likely to be revitalized in the coming years. We all need to go bowling or something and talk this out.
benjie t.
· 4 months ago
Gregor:
Your comment recently about the Portlands (OR: recently blue) Denvers (CO: newly blue) and Austins (TX: watch this space!) of the USA struck me. I'm quite interested in hearing more of your thoughts on this sort of thing, particularly how the legacy political baggage shapes the range of futures. Boston, Albany and Sacramento seem fated to gridlock at this point, don't they?
-benjie t.
billbrown
· 4 months ago
But it seems California legislature claims to be in "agreement in principle" on all but $400MM of the budget deficit. However incredulous that appears on the surface, and no doubt it is accomplished through massive accounting sleight of hand and kicking the payment of today's expensees into outlier years, along with massive cuts in previously sort-of-sacred cow spending, if they can accomplish this for the current deficit, it ... buys us just enough time (one more cycle) for this to simply get that much worse :(
gregor.us
· 4 months ago
That's interesting. 26B is such a huge gap. I just don't see how they close it. But yes I fully expect amortization tricks.
G
billbrown
· 4 months ago
There's a story in today's LAT that discusses it ... Governor's office doesn't sound convinced, either ...
pebird
· 4 months ago
FWIW, BART (Bay Area Rapid Transit) rider fares are about 50% of revenues - not 10%. If you added up the cost of highways, you would find a very similar public subsidy to private ground transportation, along with a higher cost per passenger mile.
Regardless, there is no doubt there exists a moral hazard problem with state bailouts - you would think some combination of painful cuts and temporary federal assistance would make sense. But we live in a different world.
I think the message Arnie got from Obama was their ain't gonna be much more print available. The banks got there first and O's political capital is being spent quickly.
The stimulus is completely ineffective - it doesn't matter how much funding is passed by Congress if the money isn't spent. The debt ceiling is at 12.1 trillion and total debt at 11.5 - can't stuff 700 billion (plus health care) in there unless the ceiling is raised - Congress won't do it yet. So that's why the current stimulus is spent slowly, making it worthless. If the government wants to spend fast, they can spend fast - just ask Cheney.
I think there is certainly the realization within the Administration that this is different kind of crisis and they are hamstrung with regard to options - hence lots of PR campaigns (green shoots, prosperity is around the corner, ...) - just buying time and hoping. Considering that was the campaign theme, we shouldn't be too surprised.
Maybe the next campaign theme will be "FORE" - I want a poster with that printed on it.
gregor.us
· 4 months ago
Good comment. Readers of my blog will know I am very much in agreement with you on all-in cost accounting of freeways and roads vs public transport. Also, as far as the new admin's approach to solving our current problems, it's getting harder for me to accept that they really are so dumb, and I wonder that they are cynical. Not a comforting thought. For now, I will go with the smidiot explanation--highly educated people overconfident in their solutions.
G
gregorylent
· 4 months ago
my take on this ... managing public expectations has been the sole goal of all economic actions in the usa for a year now ... "everybody knows the dice are loaded", to quote leonard cohen ...
billbrown
· 4 months ago
Topical, in that it's another "big state" in a heap of fiscal and underlying economic distress ... coincidentally, also lead by a Republican governor (although circumstance would be no different if another party was in-charge) ...
** Tuesday, July 14, 2009, 2:16pm EDT | Modified: Tuesday, July 14, 2009, 2:32pm **
** REPORT: Florida ‘a state in trouble’ ** South Florida Business Journal
On Monday, we learned that the number of millionaires in Florida had fallen dramatically. Now, a report finds that the economic future of the Sunshine State’s residents is not very bright.
The report of key economic indicators from the Florida Center for Fiscal and Economic Policy's (FCFEP) finds that per person, income growth in Florida has fallen behind the rest of the nation and that the gap in income between the most affluent and those on the bottom rung of the economic ladder is among the widest in the nation – and getting wider.
In addition to having one of the nation’s highest unemployment rates – in June, it hit 9.5 percent – many of Florida’s jobs are low paying. The national average annual earnings for all occupations were $42,270 as of May 2008. Florida’s average was almost 10 percent less, at $38,470.
"These key indicators point to a state in trouble," FCFEP Executive Director John Hall said in a news release.
"As Florida makes decisions about how much to spend, what to spend it on and how to raise the needed revenues, the economic realities detailed in this report need to be kept uppermost in the minds of policymakers.”
The report noted these signs of trouble:
* Florida's population growth, which has driven the state's economy since World War II, is stagnant. Florida's rate of income growth has fallen to 45th in the country.
* The real rate of growth in gross state product – the value of goods and services the state produces – has fallen to 47th in the nation.
* With a poverty rate of 12.5 percent, the number of people living in poverty in Florida has increased by 180,000 in one year.
* About 1.9 million Florida residents – about one in 10 – receive food stamps.
* Foreclosures in Florida have quadrupled over the last three years. In the first four months of this year, new Florida foreclosure filings totaled 198,880, according to RealtyTrac.
Per-capita state government spending is 44th in the nation, and Florida spends proportionately more of its budget on corrections than all but two states and a smaller share on education than most states.
The FCFEP is a Tallahassee-based nonprofit organization that conducts independent research.
Improving these trends will require “wise choices on both the spending and revenue sides of the Florida budget,” Hall said.
gregor.us
· 4 months ago
Yikes.
gregorylent
· 4 months ago
i do like something in the phrase "federal power will decline amidst this severe economic recession" ... seems like a boon in some ways ...
TJGodel
· 4 months ago
WOW!! I makes total sense to me. We have to "produce" something besides securitized assets. I knew most of what is said in this post, but somehow here it worst.
joshfactor
· 4 months ago
sorry but a federal bailout is the wrong answer to a well described problem. It allows states to continue to pass the buck of runaway public costs down the road for a harder day of reckoning. its true that the country needs substantial infrastructure & education investment to build for the future. but there is no future when mega corporations ship professional US jobs overseas, hire illegal immigrants instead of american labor for blue collar jobs, health care insurers gouge businesses & deny coverage to the sick, wall street banks gouge consumers on their credit cards, create a derivatives bomb & pass it to the taxpayers, & public sector costs are inflated by public employee unions. Not to mention the powerful lobbies who have more power than presidents to effect changes in the law. There are a lot of problems to fix, & more deficit spending is not a solution, but a problem in of itself. Obama will have to beat very powerful interests who are making these problems, & so far we do not see the gumption in him to do so, as evidenced by the mortgage bankruptcy reform defeat.
RHondo
· 4 months ago
I don't believe the federal government will use taxpayers dollars to bail out or maintain the standard of living that Californians enjoy. The fact that they don't want to pay for that standard themselves and wish the nation to pick up the tab says a lot about how far we have fallen.
Chris
· 4 months ago
I think that you hit the nail on the head in pointing out that too much "production" is simply leveraging past production. Not sure about this though:
"savings currently is little more than debt service."
On a typical $60k household income, the current 7% savings rate has $4200 annual run rate. I believe this is after debt service expense. So there is considerable precautionary savings being built. As well there should as high unemployment looks to be with us a while.
How do you arrive at the statement that savings is little more than debt service? Maybe I am misinterpreting it.
edvaard
· 4 months ago
In 2006 I was asked how bad it could get. My answer made people choke. Here was my answer. If it is bad, you will pimp out your wife. If it is worse, you pimp your sister. If it is really bad,you pimp your daughter. But you probably won't be pimping your mother. Notice the wife goes first.
The first to go will likely be young women to the middle east on Emirates Airlines -- they just got the A380. If this isn't a reality for you as the Russians what happend 15 years ago.
All Comments
-benjie t.
G
G
The outcome cannot be 'good' in the sense that any kind of normalcy - in the 'Leave It To Beaver' sense of the term, only a tremendous dislocation. This is inevitable. Federal intervention is a charade.
It the 'change' government would really think outside the box, by embracing small and reining in the banks - and take back its power to create money from the Federal Reserve and other banks, the transition would be useful. There would be pain ... but this is unavoidable.
The outcome of a society built on waste ... is what we are experiencing right now. Let the deleveraging begin!
G
This is incorrect. (I'll never understand the part of the human psyche that hates itself and roots for its enemies, but I digress) The top 10% of US earners now take ~50% of the National Income, that is more than even 1929! Real wages for the middle class have declined or remained flat every year for more than a generation. Per capita GDP is higher now than ever before, the problem is the distribution.
Macro economists, who are nothing more than well paid academic shills for the establishment call it a failure of effective demand, in English that can be translated to: everyone is broke because a small subset of the population is driven to acquire and hoard wealth to the detriment of everyone, including themselves.
"They" got paid in cash, real estate titles, and stock, the fastest concentration of wealth in history.
But hey, the iPhone is COOL. It's worth reducing paid maternity leave down to six hours, am I right?
Sarcasm is the new Analysis, baby!
G
Which could only take place after loans are manifestly uncollectible, anyway.
The establishment would always remain in control - a devaluation or series of them would accomplish much the same thing. To a quadrillion- dollar economy, ten or twenty - or a hundred trillion in obligations is a bagatelle. The trick is to jump from the current exponential situation to a generally logarithmic background - a steady state qradrillion dollar economy.
The obstacle would be energy costs and the downstream effects of devaluation (Saudi Arabia's dollar reserves would be .1 cent reserves and I doubt if they would like that very much. Beggar thy neighbor! They would have to sell to us, anyway but $1,000 of oil would become $1,000,000 (and probably much more) oil. The debts can be erased but the ongoing erosion of commerce would be unaffected because of the steady and ongoing increase in relative energy costs.
I recall an article in the Wall Street Journal opining about using two distinct US currencies in parallel. I thought this was pretty radical thinking for the WSJ, but with the California 'Obama' on the horizon ... why not?
http://economistsview.typepad.com/economistsvie...
Take a cue from GM bankruptcy 'procedure' and have a 'Bad' dollar, to be used for all debts past and present and a 'Good' dollar to be used for everything else. Godspeed, bad dollar!
Ironically, the big underlying problem isn't the broadly nationalized credit but high energy prices. The bubble disguised the need for extremely cheap inputs, importantly crude at rock bottom - sub $40 - prices. It's @ $60 now ...
OUCH!
Credit here is irrelevant since money cannot put more oil into the ground, only make it disappear faster above it. Self- defeating hardly describes the situation. Uhhhh ... er, where's the leadership?
As for Obama, is he for real?
http://economic-undertow.blogspot.com/2009/07/w...
The recession is helping reacquaint people with what true savings and true waste are. This is important because they were forgetting. If you bail out California, and other states, they will never learn, and things will get much worse than they are now.
Hamilton at UCSD alludes to the likelihood that we can't catch the debt now.
Concerns about the Fed's New Balance Sheet.
This is unprecedented. The dot-com bubble wasn't bailed out. The railroad bubble wasn't bailed out. The Wall St bubble of the 20s wasn't bailed out.
I get that allowing bankruptcy will collapse the economy. But those of us on the bottom are screwed either way.
G
Do you see a crisis of confidence in the USD if the government starts back-stopping the states with newly printed money?
General consensus among the Unwashed seems to be a wait for the turn, trust the Government. What is going to be the signal for people that this is not garden variety recession, but a type of economic collapse?
G
I am open-minded on this stuff, and largely neutral. Generally I advocate ideas that will work and reduce suffering. I'm not big on moral hectoring and making people pay too much for their mistakes. However, on the other side of that equation, I agree that chaos and hazard increase if people are trained that their mistakes will have few penalties.
It's a mess. All the solutions so far are a mess. I would at least like to see a discussion of a debt jubilee, with a 150K credit to all, and then new onerous credit creation restrictions, and balanced budget laws both at Federal and State levels.
Bottom line though is that I have few solutions.
G
SC is exploding government expense at 13 percent per annum on the back of bloated state workers' and teachers' pensions and every state representatives pet projects that no representative can turn down. As there is neither an effective executive branch of state government to stop it nor a judicial branch of government that has not been bought off to stop it, the inevitable train wreck is going to occur.
I still believe that individuals within their states need to fight the pork that its legislatures continue to profligate, but that may only slightly dampen the damage that is coming to the value of our currency.
I am afraid the population is far too addicted to spending to end it.
More importantly, and more to your point, it would be a shame of this crisis does not force a radical shift in spending behavior in government(s). It will have been a waste if we don't finally confront the age-old achilles heel of democracy--which is that eventually the electorate votes itself tax cuts and spending increases--to ruin.
G
I'm on Gregor's side. This is the end. The end of a value-destroying system, one that abhors connection and culture and iterative wealth creation. The beginning, however painful, of a return to smaller, more limited, more human-scale endeavor that will actually produce value for people.
But first, the pain of dismantling the old institutions, at the end of their life cycle.
I think the proper stance to take now is as follows, to say : "Your ideas suck, your solutions suck, your products suck, your media and your writing suck, your beliefs suck, your infrastructure sucks, and your priorities suck."
Heh. Get yer revoution on. (so to speak)
G
Seriously though, how long has it been like this? Was stuff this messed up in the 80s and 90s and I didn't notice?
Did you know that the big mass transit systems in CA have budgets about 10 times ticket sales?
Amtrack is about 3.5x, last I looked. Since CA residents and business pay more in Fed taxes than they get in return, Federal money may cost residents 5% more than CA receives.
As for transport systems, the proper way to analyze their economic benefit or liability goes way, way beyond fare revenues. My position now is that the California Freeway system is a bigger productivity and liability sink, than any CA public transport. You have to look at all-in costs. Take a look at what the state has to spend to maintain the very inefficient highway transport system.
G
They will soon be just as broke as California, with no industry, and an a median age in some counties of 61 YEARS OLD.
If California can't do it with surging, young, dynamic populations and lots of talent, how will the others fare?
Perhaps we should plug you in, to the next call.
G
Your comment recently about the Portlands (OR: recently blue) Denvers (CO: newly blue) and Austins (TX: watch this space!) of the USA struck me. I'm quite interested in hearing more of your thoughts on this sort of thing, particularly how the legacy political baggage shapes the range of futures. Boston, Albany and Sacramento seem fated to gridlock at this point, don't they?
-benjie t.
G
Regardless, there is no doubt there exists a moral hazard problem with state bailouts - you would think some combination of painful cuts and temporary federal assistance would make sense. But we live in a different world.
I think the message Arnie got from Obama was their ain't gonna be much more print available. The banks got there first and O's political capital is being spent quickly.
The stimulus is completely ineffective - it doesn't matter how much funding is passed by Congress if the money isn't spent. The debt ceiling is at 12.1 trillion and total debt at 11.5 - can't stuff 700 billion (plus health care) in there unless the ceiling is raised - Congress won't do it yet. So that's why the current stimulus is spent slowly, making it worthless. If the government wants to spend fast, they can spend fast - just ask Cheney.
I think there is certainly the realization within the Administration that this is different kind of crisis and they are hamstrung with regard to options - hence lots of PR campaigns (green shoots, prosperity is around the corner, ...) - just buying time and hoping. Considering that was the campaign theme, we shouldn't be too surprised.
Maybe the next campaign theme will be "FORE" - I want a poster with that printed on it.
G
** Tuesday, July 14, 2009, 2:16pm EDT | Modified: Tuesday, July 14, 2009, 2:32pm **
** REPORT: Florida ‘a state in trouble’ **
South Florida Business Journal
On Monday, we learned that the number of millionaires in Florida had fallen dramatically. Now, a report finds that the economic future of the Sunshine State’s residents is not very bright.
The report of key economic indicators from the Florida Center for Fiscal and Economic Policy's (FCFEP) finds that per person, income growth in Florida has fallen behind the rest of the nation and that the gap in income between the most affluent and those on the bottom rung of the economic ladder is among the widest in the nation – and getting wider.
In addition to having one of the nation’s highest unemployment rates – in June, it hit 9.5 percent – many of Florida’s jobs are low paying. The national average annual earnings for all occupations were $42,270 as of May 2008. Florida’s average was almost 10 percent less, at $38,470.
"These key indicators point to a state in trouble," FCFEP Executive Director John Hall said in a news release.
"As Florida makes decisions about how much to spend, what to spend it on and how to raise the needed revenues, the economic realities detailed in this report need to be kept uppermost in the minds of policymakers.”
The report noted these signs of trouble:
* Florida's population growth, which has driven the state's economy since World War II, is stagnant.
Florida's rate of income growth has fallen to 45th in the country.
* The real rate of growth in gross state product – the value of goods and services the state produces – has fallen to 47th in the nation.
* With a poverty rate of 12.5 percent, the number of people living in poverty in Florida has increased by 180,000 in one year.
* About 1.9 million Florida residents – about one in 10 – receive food stamps.
* Foreclosures in Florida have quadrupled over the last three years. In the first four months of this year, new Florida foreclosure filings totaled 198,880, according to RealtyTrac.
Per-capita state government spending is 44th in the nation, and Florida spends proportionately more of its budget on corrections than all but two states and a smaller share on education than most states.
The FCFEP is a Tallahassee-based nonprofit organization that conducts independent research.
Improving these trends will require “wise choices on both the spending and revenue sides of the Florida budget,” Hall said.
"savings currently is little more than debt service."
On a typical $60k household income, the current 7% savings rate has $4200 annual run rate. I believe this is after debt service expense. So there is considerable precautionary savings being built. As well there should as high unemployment looks to be with us a while.
How do you arrive at the statement that savings is little more than debt service? Maybe I am misinterpreting it.
If it is bad, you will pimp out your wife.
If it is worse, you pimp your sister.
If it is really bad,you pimp your daughter.
But you probably won't be pimping your mother.
Notice the wife goes first.
The first to go will likely be young women to the middle east on Emirates Airlines -- they just got the A380. If this isn't a reality for you as the Russians what happend 15 years ago.