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With the TVA, the FDIC, Social Security, and many other capricious “recovery” schemes, Roosevelt’s willy-nilly interference in private business was more responsible than anything else for the Great Depression. The Crash of 1929? Yes, that was extremely serious — almost as serious as the great unraveling that started in September 2008. The Great Depression from 1932 to 1942, however, was Roosevelt’s fault.
The Fed monetary policy under Roosevelt, just as it is now and was during Carter, was an explicitly Keynesian effort to correct unemployment — not a stable-currency policy as Reagan and Margaret Thatcher pursued.
Worldwide, sovereign debt is being serially repudiated. Private institutional buyers are being told that they are going to get a “haircut.” Portugal, Ireland, Italy, Greece, and Spain (the “PIIGS,” ha-ha) are in process of defaulting.
With uncertainty on the rise, China’s ruling class is hedging its dollar exposure by snapping up commodities at a dizzying rate and conducting some international trade in non-dollar currencies. The yuan is already in use as a legitimate world-trade currency because, as with any currency, its underlying value is based on the issuer’s sustained and perceived future productivity. Unsurprisingly, China’s expected productivity is about to rival America’s.
In other words, this is not mysterious, fear-of-fear-itself uncertainty; it is rational uncertainty, uncertainty with a clear and historically informed basis and a known etiology. And with this odd certainty of uncertainty comes the Great Depression II.
The future does not look bright.
Over the past couple of years, most Americans have shown little concern as austerity measures were imposed on financially troubled nations across Europe. Even as austerity riots erupted in nations such as Greece and Spain, most Americans were still convinced that nothing like that could ever happen here. Well, guess what? Austerity has arrived in America. At this point, it is not a formal, mandated austerity like we have seen in Europe, but the results are just the same. Taxes are going up, services are being slashed dramatically, thousands of state and city employees are being laid off, and politicians seem to be endlessly talking about ways to make even deeper budget cuts. Unfortunately, even with the incredibly severe budget cuts that we have seen already, many state and local governments across the United States are still facing a sea of red ink as far as the eye can see.
Most Americans tend to think of “government debt” as only a problem of the federal government. But that is simply not accurate. The truth is that there are thousands of “government debt problems” from coast to coast. Today, state and local government debt has reached at an all-time high of 22 percent of U.S. GDP. It is a crisis of catastrophic proportions that is not going away any time soon.
A recent article in the New York Times did a good job of summarizing the financial pain that many state governments are feeling right now. Unfortunately, as bad as the budget shortfalls are for this year, they are projected to be even worse in 2012….
While state revenues — shrunken as a result of the recession — are finally starting to improve somewhat, federal stimulus money that had propped up state budgets is vanishing and costs are rising, all of which has left state leaders bracing for what is next. For now, states have budget gaps of $26 billion, by some estimates, and foresee shortfalls of at least $82 billion as they look to next year’s budgets.
So what is the solution? Well, for state and local politicians from coast to coast, the answer to these financial problems is to impose austerity measures. Of course they never, ever use the term “austerity measures”, but that is exactly what they are.
The following are 22 signs that austerity has already arrived in America and that it is going to be very, very painful….
#1 The financial manager of the Detroit Public Schools, Robert Bobb, has submitted a proposal to close half of all the schools in the city. His plan envisions class sizes of up to 62 students in the remaining schools.
#2 Detroit Mayor Dave Bing wants to cut off 20 percent of the entire city from police and trash services in order to save money.
#3 Things are so tight in California that Governor Jerry Brown is requiring approximately 48,000 state workers to turn in their government-paid cell phones by June 1st.
#4 New York Governor Andrew Cuomo is proposing to completely eliminate 20 percent of state agencies.
#5 New York City Mayor Michael Bloomberg has closed 20 fire departments at night and is proposing layoffs in every single city agency.
#6 In the state of Illinois, lawmakers recently pushed through a 66 percent increase in the personal income tax rate.
#7 The town of Prichard, Alabama came up with a unique way to battle their budget woes recently. They simply stopped sending out pension checks to retired workers. Of course this is a violation of state law, but town officials insist that they just do not have the money.
#8 New Jersey Governor Chris Christie recently purposely skipped a scheduled 3.1 billion dollar payment to that state’s pension system.
#9 The state of New Jersey is in such bad shape that they still are facing a $10 billion budget deficit for this year even after cutting a billion dollars from the education budget and laying off thousands of teachers.
#10 Due to a very serious budget shortfall, the city of Newark, New Jersey recently made very significant cuts to the police force. Subsequently, there has been a very substantial spike in the crime rate.
#11 The city of Camden, New Jersey is “the second most dangerous city in America”, but because of a huge budget shortfall they recently felt forced to lay off half of the city police force.
#12 Philadelphia, Baltimore and Sacramento have all instituted “rolling brownouts” during which various city fire stations are shut down on a rotating basis.
#13 In Georgia, the county of Clayton recently eliminated its entire public bus system in order to save 8 million dollars.
#14 Oakland, California Police Chief Anthony Batts has announced that due to severe budget cuts there are a number of crimes that his department will simply not be able to respond to any longer. The crimes that the Oakland police will no longer be responding to include grand theft, burglary, car wrecks, identity theft and vandalism.
#15 In Connecticut, the governor is asking state legislators to approve the biggest tax increase that the state has seen in two decades.
#16 All across the United States, conditions at many state parks, recreation areas and historic sites are deplorable at best. Some states have backlogs of repair projects that are now over a billion dollars long. The following is a quote from a recent MSNBC article about these project backlogs….
More than a dozen states estimate that their backlogs are at least $100 million. Massachusetts and New York’s are at least $1 billion. Hawaii officials called park conditions “deplorable” in a December report asking for $50 million per year for five years to tackle a $240 million backlog that covers parks, trails and harbors.
#17 The state of Arizona recently announced that it has decided to stop paying for many types of organ transplants for people enrolled in its Medicaid program.
#18 Not only that, but Arizona is do desperate for money that they have even sold off the state capitol building, the state supreme court building and the legislative chambers.
#19 All over the nation, asphalt roads are actually being ground up and are being replaced with gravel because it is cheaper to maintain. The state of South Dakota has transformed over 100 miles of asphalt road into gravel over the past year, and 38 out of the 83 counties in the state of Michigan have transformed at least some of their asphalt roads into gravel roads.
#20 The state of Illinois is such a financial disaster zone that it is hard to even describe. According to 60 Minutes, the state of Illinois is six months behind on their bill payments. 60 Minutes correspondent Steve Croft asked Illinois state Comptroller Dan Hynes how many people and organizations are waiting to be paid by the state, and this is how Hynes responded….
“It’s fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state.”
#21 The city of Chicago is in such dire straits financially that officials there are actually toying with the idea of setting up a city-owned casino as a way to raise cash.
#22 Michigan Governor Rick Snyder is desperately looking for ways to cut the budget and he says that “hundreds of jurisdictions” in his state could go bankrupt over the next few years.
But everything that you have just read is only the beginning. Budget shortfalls for our state and local governments are projected to be much worse in the years ahead.
So what is the answer? Well, our state and local governments are going to have to spend less money. That means that we are likely to see even more savage budget cutting.
In addition, our state and local politicians are going to feel intense pressure to find ways to “raise revenue”. In fact, we are already starting to see this happen.
According to the National Association of State Budget Officers, over the past couple of years a total of 36 out of the 50 U.S. states have raised taxes or fees of some sort.
So hold on to your wallets, because the politicians are going to be coming after them.
We are entering a time of extreme financial stress in America. The federal government is broke. Most of our state and local governments are broke. Record numbers of Americans are going bankrupt. Record numbers of Americans are being kicked out of their homes. Record numbers of Americans are now living in poverty.
The debt-fueled prosperity of the last several decades came at a cost. We literally mortgaged the future. Now nothing will ever be the same again.
Michael T. Snyder is a graduate of the McIntire School of Commerce at the University of Virginia and has a law degree from the University of Florida. He is an attorney that has worked for some of the largest and most prominent law firms in Washington D.C. and who now resides outside of Seattle, Washington. He is a very active blogger and is also a respected researcher, writer, speaker and activist. He blogs at theeconomiccollapseblog.com
EXCERPTS:
December’s unexpectedly high inflation rate put the Bank of England under even more pressure to raise interest rates, although City economists disagree about how soon borrowing costs will rise. It is also likely to lead to higher wage demands, as workers feel the effect of Britain’s austerity cutbacks and the VAT rise.
The consumer prices index rose to 3.7% in December, the Office for National Statistics reported. On a month-on-month basis, prices rose by 1% – the biggest increase on record.
The retail prices index, the wider inflationary measure used in pay negotiations, jumped to 4.8%, its highest rate since last July.
The pound gained half a cent against the dollar after the data was released, hitting an eight-week high of $1.6056. Alan Clarke, economist at BNP Paribas, predicted that the persistently strong inflation may push the Bank of England into raising rates earlier than previously thought.
The nation's most prominent publicly funded climatologist is officially angry about this, blaming democracy and citing the Chinese government as the 'best hope' to save the world from global warming. He also wants an economic boycott of the U.S. sufficient to bend us to China's will.Maybe its me, but it doesn't seem right that a guy who makes a living on the government dime is calling for an economic boycott of the country that pays his salary.
According to Mr. Hansen, compared to China, we are 'the barbarians' with a 'fossil-money- 'democracy' that now rules the roost,' making it impossible to legislate effectively on climate change. Unlike us, the Chinese are enlightened, unfettered by pesky elections. Here's what he blogged on Nov. 24:
'I have the impression that Chinese leadership takes a long view, perhaps because of the long history of their culture, in contrast to the West with its short election cycles. At the same time, China has the capacity to implement policy decisions rapidly. The leaders seem to seek the best technical information and do not brand as a hoax that which is inconvenient.'
Because Congress is not likely to pass any legislation making carbon-based energy prohibitively expensive, he proposed, in the South China Morning Post, that China lead a boycott of our economy:I am not an attorney, but allow me to suggest that the technical term for someone who goes to a different country and calls for that country to wage an economic boycott of his homeland is treason. At the very least, in the corporate world, if he went to a major bond holder of the company he worked for and told them to pull their money he would be subject to dismissal. The time has come for an investigation of Hansen's comment's, if he wasn't misquoted he should either be charged with treason or, if his actions don't meet the legal definition of treason, he should be immediately terminated. Hansen has a right to free speech but not when he is acting as a representative of the United States Government.
'After agreement with other nations, e.g., the European Union, China and these nations could impose rising internal carbon fees. Existing rules of the World Trade Organization would allow collection of a rising border duty on products from all nations that do not have an equivalent internal carbon fee or tax.
'The United States then would be forced to make a choice. It could either address its fossil-fuel addiction ... or ... accept continual descent into second-rate and third-rate economic well-being.'
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Obviously, the political climate is still very casutic for democrats.
North Dakota Democratic Senator Kent Conrad will not seek reelection.
The Washington Post reported, via Free Republic:
"North Dakota Democratic Sen. Kent Conrad announced today that he will not seek reelection, creating a potentially prime pickup opportunity for Republicans in a GOP-leaning state.
“After months of consideration, I have decided not to seek reelection in 2012,” Conrad said in a letter to constituents. “There are serious challenges facing our State and nation, like a $14 trillion debt and America’s dependence on foreign oil. It is more important I spend my time and energy trying to solve these problems than to be distracted by a campaign for reelection.”
Conrad, who currently chairs the Senate Budget Committee, has been in office since 1986 and risen to become one of the most influential — and intellectual — policy makers operating in the nation’s capital.
Conrad had been open about his ambivalence about running for another term and those doubts almost certainly increased following a 2010 election that decimated the Democratic party.
A report from the Detroit News Monday suggested that without government aid, the city of Detroit will be forced to close down nearly half of the city’s public schools in the next two years. Additionally, the paper warns that average high school class sizes will swell to 62 students by the following year.
These startling statistics were laid out in a deficit-reduction plan filed with the state of Michigan by the city’s Emergency Financial Manager Robert Bobb. Bobb’s role is working to slash the $327 million deficit the Detroit school district has accrued over the years.
According to the Detroit News, Detroit Public Schools considered filing for bankruptcy in 2009 but declined. In the past year alone, debt in the district has increased by more than $100 million, brought on by a “mix of revenue declines in property taxes, reduced state aid, declining enrollment and an unplanned staffing surge this past fall.”
While Bobb and DPS administrators have a lot to account for, noticeably absent from the discussion is the role of the teachers unions.
As students suffer amidst increasing classroom sizes and declining school choices, the district’s teachers stand to earn higher salaries. The city’s contract with the Detroit Federation of Teachers requires payments for teachers whose class sizes exceed specified maximums. So while Bobb demands increased class sizes to save the district money, the district is simultaneously estimating the move will create $10 million in additional costs to pay teachers’ oversize class pay over the next four years alone.
The Wall Street Journal notes the city’s decaying public school system:
“Additional savings of approximately $12.4 million can be achieved from school closures if the District simply abandons the closed buildings,” the proposal explains, purging costs like boarding up buildings, storage and security patrols.
Steven Wasko, a spokesman for Mr. Bobb, said that urban property sales have been difficult, in part because until recently the state board of education banned transactions with “competing educational institutions” like charter schools. Once buildings are deserted, even if the doors and windows are welded shut with protective metal covers, scavengers break in and dismantle them for copper wire, pipes and so on.
Under the emergency plan, consolidated high-school class sizes would increase to 62 by 2014, “consistent with what students would expect in large university settings.” Yet under the terms of the Detroit Federation of Teachers contract, the district must pay bonuses for class enrollment over 35, thus imposing some $11.1 million in new costs through 2014.
Note that this dispensation carries about the same price tag as the school abandonment windfall: In other words, Detroit may end up destroying serviceable capital assets so it can pay its public workers more over the short term.
Mr. Wasko cautions that the school closure plan is a last resort, and Mr. Bobb has floated other ideas, including a financial restructuring similar to the GM bailout/bankruptcy. Detroit Federation of Teachers president Keith Johnson rejected even that because “The children of Detroit are not consumed products of a profit-driven corporation like a car,” as he wrote in an op-ed this week. Maybe his real objection is that the GM model might allow the district to rationalize its labor liabilities.
"The budget gap is party due to the property tax revenue collapse as the Motor City crumbles, as well as financial mismanagement and a surge in pay and benefits for public employees. The Mackinac Center, a state think tank, reports that average Michigan teacher salaries outpaced those of all other states from 2003 to 2009, when adjusted for state per capita income as a proxy for the local ability to pay.
It’s hard to think of a sadder commentary on a government so fiscally desperate and so captured by its workers that it may be forced to abandon property to thieves. But are they the scavengers or the union?
A widely reprinted AP story, based on a recent AP/GfK poll, is entitled, 'Opposition to health care law eases.' Don't believe it. What has eased isn't the level of opposition to Obamacare, but rather the level of effort that AP/GfK has made to ensure that its polling sample is representative of American voters.
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