“60 Minutes” recently did a piece on the financial situation of state and local governments. What we could be looking at is another financial meltdown in the U.S., caused by municipal government bond defaults. What this story suggests is that when this happens (Meredith Whitney, a financial analyst who was interviewed for this piece, said we will see 50-100+ significant municipal bond defaults in the next 12 months), it will have been caused by benefit and pension obligations that states are now legally bound to honor for state and municipal employee unions. The financial losses for bondholders will be in the hundreds of billions of dollars, unless they are bailed out by the federal government (states don’t have the reserves to cover these losses, for the most part), and it’s looking like the federal government is not going to come to the rescue this time. It’s got its own financial problems. This will not only have implications for local services that are currently offered, it will also negatively affect the financial markets. It sounds like the financial sector (big banks) will be one of the sectors hit again, since they are significant holders of municipal bonds. This is advanced warning so that we can prepare for another financial collapse. I suggest we take heed.
This is an excellent article on how our municipal governments have evolved over time, and how the incident in Bell, CA. was a kind of “canary in the coal mine” moment:
“How the Road to Bell Was Paved”, by William Voegeli, City Journal
I think this explains a lot about how Boulder city government and the local school board operate. I don’t know this for fact, but I don’t think we have the sort of overpaid salary problems that Bell had. That’s not the reason I’m recommending you read it. What’s important is the history that led to this incident, because it affects many, if not all cities across the country.
Obama came out yesterday to announce that he had come to an agreement with the Republicans in congress to keep the Bush tax cuts on a temporary basis, to cut the payroll tax, to raise the estate tax (though less than he wanted), and to extend unemployment benefits for another year. I hate saying this, because I think it is good that the government not overtax, but I don’t see what’s responsible about this. I can see not raising taxes on small businesses, so as to not cause more damage than the Democrats have already done. Hopefully as the economy recovers they’ll hire more people. The top 1% I have no opinion about. I wouldn’t mind seeing their taxes raised.
Social Security and Medicare are not solvent at this point, and so cutting the payroll tax doesn’t help there. It will provide relief to the poor and middle class, though. I’m sure there are some people out there who will be thankful for that.
I haven’t liked the principle of the estate tax. This is money that has likely already been taxed once. If anything it should be taxed at the gift rate, because that’s essentially what it is.
Unemployment insurance has been funded more or less for two years now. I heard from one small business that their unemployment insurance fee had gone up 80% from two years ago. This insurance was designed to be temporary. It’s turning into another welfare program. It’s not that I want to see people struggle. Rather, I want people who need an income to work for it. That’s part of what will get this economy going again. Unfortunately there’s a lot of fraud in the unemployment insurance program, because the government doesn’t have the staff to check up on everybody. Secondly, I’ve been hearing stories about people who have had opportunities to work, but who haven’t because it’s not the job they want, or it pays less than what they’re getting in insurance. This needs to stop, but I guess it won’t.
I shouldn’t heap all of the blame on the President. The Republicans are in on this as well. I would be more approving if I saw something that gave me assurances that they were going to tackle the big programs that are eating the federal budget alive, as well.
I am worried about the government’s fiscal situation. Something has got to give. In January, when the new congress will come into session, ALL of the tax revenue for this fiscal year will already have been claimed by Social Security, Medicare, and interest on the debt. In fact, the tax revenue will not even cover all of that. Some money had to be borrowed this year just to pay Social Security benefits. That’s the first time that’s happened in 30 years. Every single piece of discretionary spending next year will have to be borrowed! The funding for the basic functions of government, funding for the military (our wars), education, the various departments of government, etc.–ALL OF IT–will have to be borrowed. This is serious. Either the government needs to figure out a way to raise revenue for its programs, or the programs need to be cut. This is one reason the decision to keep the Bush tax rates concerns me, because with the exception of trying to stop Obamacare (a move I don’t object to at all), I haven’t heard from the Republicans that they’re going to work on cutting Medicare, which is the next biggest fiscal train wreck coming down the pike. What also concerns me is that many of the Tea Party members, who are now a force to be reckoned with in the Republican Party, don’t seem to have a handle on what’s going on with the government’s budget. It seems like they’re satisfied with the oncoming train wreck, just getting there at a slower pace. They want Obamacare repealed (which is fine by me), but most of them don’t want Medicare cut at all. To me this is missing the point. Even if the Democrats had not passed the health care bill this year, and the “stimulus” and bailout bills last year, Medicare would still be a looming fiscal problem. Social Security is another looming problem. It’s not as big as the problem with Medicare, but there’s going to come a day of reckoning for it as well. It is not actuarially sound at this point.
What really got me steamed, though (this is the reason I named this post “Obama acting unpresidential”), was when Obama was asked why he agreed to this deal over the objections of his own left wing base. He said that you don’t want to negotiate with hostage takers unless the hostages are going to get hurt. In case you need this spelled out, the “hostage takers” in this scenario are the Republicans (who, by the way, were elected by a majority of voters), and the “hostages” are “the American people.” Gee, that makes a lot of sense! We were stupid enough to elect criminals, or even terrorists to office in government, and now they’re holding us “hostage”! Wow, Mr. President. Now I see how little respect you have for the voters, and for the democratic process. Yes, I know you want to take care of us. We’re so daft that we can’t take care of ourselves, but being stupid we keep doing inept stuff like protesting the policies you’ve crafted to make sure we’re safe and sound, and we keep voting in people who vote against your caring graces, which prevents you from doting over us. You take pity on us, because we’re so F-ING STUPID TO YOU!!! Yes, well you know where you can shove your arrogance!
Mr. President, this is really beneath your office to say this about your opposition. I know this was red meat to your left wing base, who are crying in their wine glasses (or their lattes) over this, but it was beneath the dignity of the office you hold. Get a grip and do your job, which you were elected to do! I don’t care who’s president, or who’s in the congress. The president should not compare his (or her) opposition to criminals, or terrorists, unless of course they really deserve it (if they’ve broken the law). Some have said this doesn’t foster an atmosphere of bipartisanship. Well that’s an understatement! I know O’Reilly laughed this off last night, but I think it represented an international incident. He admitted for all to hear that he was readily willing to negotiate in a situation if hostage takers were demanding ransom, and were going to hurt their captives. Well I wouldn’t be surprised to see some Islamists take that cue and take some hostages to call him on it.
President Obama should apologize, both to the Republicans in congress, and to the American people. I am sure the Republicans will not demand this, as they’re glad to get this compromise, but I would sure like to see it, as I found this offensive.
“Indebted and Unrepentant”, by Fred Siegel, City Journal
“Our burgeoning budget and the politics of avoidance”, by Robert J. Samuelson, Washington Post
“The rest of the world goes West when America prints more money”, by Liam Halligan, The UK Telegraph
“Mounting Debts by States Stoke Fears of Crisis”, by Michael Cooper and Mary Walsh, New York Times
“What the Bowles-Simpson plan left out”, by Robert J. Samuelson, Washington Post