Posted on 11/22/2008 12:19:09 PM PST by george76
At a time when stores like Mervyns and Circuit City are closing hundreds of locations, and thousands of private sector jobs are being cut, government jobs and salaries are remaining safe.
San Bernardino County registered an 9 percent unemployment rate in October, the highest rate in 15 years, according to the California Employment Development Department.
Yet government itself seems to be weathering the economic firestorm just fine.
Despite the Inland Empire losing 22,300 jobs over the past year, government reported the greatest year-over-year gain, adding 5,500 jobs...
Local government accounted for more than 85 percent of the job growth in this sector, while the federal government added 400 jobs and state government added 300.
During the same time, the construction industry reported the greatest loss, down 15,500 jobs.
State Sen. George Runner said government in California simply can’t continue to grow at the rate that it has been growing.
(Excerpt) Read more at vvdailypress.com ...
As he went to the bank to cash another check from the L.A. County Probation Officers Union.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I spent all of yesterday at hearings on County budget cuts. This was the second round of cuts since the new fiscal year. So far, we have taken approximately 3% off General fund Department budgets since July. The state is looking at another round of cuts, which may cause us to cut another $2.6 million early next year. (We are a small County, the whole General fund revenues are only around $32 million. The General Fund does not include state programs such as Human Services, Public Health, Child Support and Mental Health. It includes departments like the Sheriff, DA, jail, elections, etc. )
We are down to the point where many of our department’s budgets are 80-90% salaries and benefits. There is no where else to cut without impairing the functionality of the department. This means that in the next round of cuts, it is likely that we will no longer be able to provide some functions we are mandated to provide by law. We will likely begin with cutting non-mandated public services such as libraries, emergency services and the criminal grand jury.
It is probable that there will be layoffs.
We have already had departments review their fee schedules and have raised many of those fees. We have also combined some departments and have frozen 11 positions since July which have become vacant. Most departments have curtailed travel, training and the purchase of equipment. We have emptied most of our reserves.
It does not help when the media either does not inform the public or misinforms the public about how serious the situation is.
The gravy train is rapidly coming to a halt. Tax revenues next year are going to be “in the toilet” at all levels. And even at the federal level, politicians are going to be amazed when they are told that there *is* no more money to spend.
I do not envy the job of the Secretary of the Treasury. Congressmen used to deficit spending are going to be told that they can’t. And he will have to explain to them that if they “just print money”, it will be worthless before the ink is dried.
Obama is very likely going to be the US president when the US officially goes bankrupt. None of his ideas are going to go anywhere, unless they involve shrinking government.
He will be remembered for taking away Social Security, Medicare, Medicaid, slashing Defense, closing dozens of entire government Departments and Agencies, etc.
Right now he thinks he will be like FDR, and spend his way to prosperity. But that trick has been used up. There is no money left to spend. Nobody willing to loan money, either. No income to income tax. No capital gains to capital gains tax.
And all the countless millions of Americans who want money from the US Treasury will be told to “Go Fish”.
When it is all done, Obama will be lucky if his name is just stricken from the history books, and he moves back to Kenya to raise goats.
They are printing money.
These federal bailout loans, grants, whatever... will likely never be re-paid.
When social security and medicare go under water next decade, they will only find a bunch of IOU’s.
It is more acute than that. China has just passed Japan as the largest holder of US debt. In Japan’s case, it is dumping US Treasuries, which must be redeemed for cash value of the principal, not just the interest, or the US is bankrupt. (Right now, 10% of the US budget is used just to pay the yield on bonds. There is no conceivable way the US could pay the principal on a decreasingly small piece of the national debt.)
And the only way the US can raise money to pay off these Japanese owned T-bills is by issuing more T-bills. But there is nobody left to buy new issues. China is tapped, and may have to cash its bills soon. Corporate America is in debt by a factor greater than the USG. Just one market alone, derivatives, is already out $150T. Even the credit card company bonds, which they issue to cover cardholder transactions, had a failed bond sale.
The smarter corporations are clutching on to whatever liquidity they have and storing it in their own safes. If one company loans another money, they put that money in their safe and don’t use it.
When the Secretary of the Treasury tells Obama that there is no money left from tax revenues (down by double digits in 2009, my guess is from $2.8T to less than $2T), and nobody will loan the US money, he will probably then decide to “just print money”.
But that money will be worthless. They might as well hand out clam shells, because it is not backed by anything. It is called “monetizing the debt.”
This turns what he is afraid of, a deflationary spiral shutting down the economy, into something worse. Possibly “cash deflation” and price hyperinflation. Literally meaning that “there is no money but paper money”.
Paper money only backs 5% of the daily US retail market. The Bureau of Engraving and Printing works at 100% production to make just that. All the rest is virtual money. If you have “money in the bank”, numbers on a computer, it will hyper-inflate with the government “printing money”. But physical paper money will have tremendous deflation.
If something costs $10, if you pay electronically, with inflation it may cost $1000. But with physical cash, only $1.
For this reason, and with almost no risk right now, I would highly recommend having a few thousand dollars of paper money and coins at home, in a safe place. Banks are no longer safe.
CITI may fail shortly, and there is no way the FDIC can insure its holders, even with a direct pipeline into the Treasury.
Truthfully, at some point about the only thing the USG can do is to try and shut down as much as possible, and provide shelter and food to as many unemployed and homeless people as it can.
Recovery is going to take a very long time.
The Japanese stock market was at 40,000 twenty years ago.
After several failed attempts at 20,000, it is below 10,000 headed to ?
Not even counting inflation.
Does your county have a name? I’ve served as a deputy department head in a very large county, and as a department head in a medium size county and I can assure you that virtually any department can continue to function with a 10 or 20% total budget reduction, and not significantly compromise service to the public. The problem is that it takes a creative and bold department head to do it. A competent CAO is essential too.
Most government managers too entrenched in the bureaucracy to think outside the box.
And, this is not the time to be increasing revenues through higher fee schedules.
At least one serious economist I’ve heard of late has said that, all else being equal, the DOW should stabilize from 800 to 1500 for some years.
I think that eventually, the resolution to all of this will be found in the USG taking the attitude of a profit making enterprise.
Back during the Great Depression, the Smoot-Hawley Tariff Act was seen as a tragic mistake, because it brought international trade to a halt. But now we are seeing that it really didn’t matter, because trade would have ended anyway. Right now international ports are overloaded with import and export merchandise just sitting on the docks, and their piers are full of cargo ships sitting idle.
Ironically, as far as the US, and probably other countries are concerned, this may be a good thing. The US created a huge trade deficit by having other countries produce the goods we wanted, and allowed our heavy industry to go bust. The auto companies are the last gasp of this right now.
This means that we will have to revitalize our industries to stimulate our economy. But industries freed by bankruptcy from the endless and onerous intrusion of government.
In the short term, one of America’s powerful industries, agribusiness, is to a great extent untouched. We feed a lot of the rest of the world, and might take advantage of this situation to sell them food in exchange for US national debt relief. A bushel of wheat for $10 cash, or free with forgiveness of $100 of US T-bills. And since they won’t have cash, this is also easier on them, because they just need to swap paper, not goods that they can sell elsewhere.
But back to the idea of the US as a profit making enterprise. There are many ways this can be done, but always with the idea of every year their being a larger budget surplus from taxes.
Instead of sending our military to every trouble spot around the world, we could save a ton of money by organizing an offshore American Foreign Legion, modeled after the French version. Light infantry to do the boring and extended work our military currently does, like peacekeeping and humanitarian missions. This alone would save billions of dollars annually.
Social Security could be returned to its original purpose of a retirement system for only minimum wage employees with no other retirement. Everyone else on the system gets a slightly higher tax deduction than a direct payment, if they have other taxable income. And while at first, they are almost going to have to use means testing, eventually this would be a way to both avoid ripping off people, and having money freed up for investment.
As much as possible of the health care system would be privatized, and for cash only, not insurance. Cash only doctors have discovered that their costs, and thus the price of their services, can be slashed by 50%, if they don’t deal with Medicare, Medicaid, or Insurance. This would take care of most of the system. The rest would involve piecemeal systems, with some limited government and insurance involvement.
If the government is trying to make a surplus, then how they tax matters much more than trying to reward or punish with taxes. In a nutshell, this means a flat tax, with a cut off below an income level.
Corporate taxes to a great extent would be eliminated, as they just make US companies much less able to compete. The increase in corporate dividends and salaries to individuals would more than offset this with much higher tax revenues. The huge costs of the IRS would be slashed as well. Their operating budget is about $11B a year.
The relative size of the federal government will have to shrink dramatically in the coming years. Hopefully most of the reductions will be in activities with no constitutional basis. Most of the federal lands in the western US should be returned to the States, and any number of Departments and Agencies will close.
The drug war will be over. Infrastructure repair will be a problem until heavy industry is rebuilt, but by then the economic crisis will be well on the way to being over.
So much speculation. This is what we should hope happens. But never underestimate the ability of government to bollix things up royally.
Siskiyou
BTW you are British, yes? Never heard an American speak of bollixing anything up ;^)
Let’s hope :
“The relative size of the federal government will have to shrink dramatically in the coming years. Hopefully most of the reductions will be in activities with no constitutional basis. Most of the federal lands in the western US should be returned to the States, and any number of Departments and Agencies will close.”
The Chinese are now learning the painful lesson that losing their best customer is expensive .
No, not British, but familiar with the term.
“...the debt could be lowered by monetizing new wealth to generate the necessary means to do so.”
This is the post-WWII Republican growth alternative to the Democrat’s inflationary philosophy. Unfortunately, it won’t work here, either.
To explain, growth used to be defined solely in terms of real products and services. But the definition was changed to include virtual growth, intangible products and services. Paradoxically, this was when “productivity” became the be all, end all standard for western economic growth. In truth, it was almost nonsensical.
For example, if an engineer physically built a new product, by the old standard he was contributing to growth. But when the construction of such products was outsourced to some other country, his job was changed to writing memos reviewing what the foreign engineer who was building the product was doing. But this was called growth as well. So if this year, he writes two memos instead of just one, he has doubled his productivity.
For the last two decades or so, America’s real industrial growth has dropped precipitously, while the pretense has been that it was growing. Once the auto makers have folded, most people would be hard pressed to guess what heavy industry the US has left.
With the international economic crisis, trade will come to a halt, and the US will be forced to recreate its heavy industry. Only then will real growth help the economy. But until then, until vast amounts of fake growth are swept aside, efforts at growth will go to support them, not real growth.
I am reminded just a few days ago there was widespread outrage when a corporation got $12B in bailout money from the government, then promptly turned around and paid $14B in bonuses to its employees and board of directors.
Endless examples like this are why a growth policy won’t work for a long time.
It would be noce if the legislatures voided some of the regulations and mandadted programs. For instance, if we don’t regulate air quality, then it doesn’t go away. The state just comes in and does it and charges locals for the travel time from Sacto. etc.
No it is not. I am not talking about growth of production of goods. I am talking about NEW wealth or raw materials. How do you think Dubai is paying for the expansion of its shore line? This current economic condition of the globe has been being forcast for over 35 years.
And I agree that it would be good, but unfortunately, growth has been co-opted by non-productive leverage. Instead of opening a new mine, speculative mining futures are being called growth.
This means that the non-productive leverage has to collapse before real growth, that you are talking about, can happen. Otherwise it drains investment away from real growth. Like it is doing right now.
As an aside, your argument is very valid. An economic statistician made the extraordinary discovery that there is one, and only one, 100% correlation with economic strength in human history: mining.
As a nation or bloc mines, it prospers and grows. As its mining declines, so do its fortunes. To his credit, he took almost a decade to try and disprove this conclusion before releasing his results.
It is not, and will not be widely published, for obvious reasons.
“In the short term, one of America’s powerful industries, agribusiness, is to a great extent untouched. We feed a lot of the rest of the world, and might take advantage of this situation to sell them food in exchange for US national debt relief. A bushel of wheat for $10 cash, or free with forgiveness of $100 of US T-bills. And since they won’t have cash, this is also easier on them, because they just need to swap paper, not goods that they can sell elsewhere.”
We have a small but serious problem with agribusiness. Among many of the other idiotic things we have done, we have allowed foreigners to buy huge quantities of farmland. Gonna be real interesting to see what happens when we are in the middle of the coming Depression, Americans are starving...and agricultural products are being grown on American soil and shipped to other countries. WE should NEVER have allowed foreign entities to own farmland.
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