Tag: states bankrupt

–Ignorance: Why you will pay more taxes and receive less service in the coming years.

The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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Here is an article from the Washington Post, demonstrating how ignorance of Monetary Sovereignty is destroying our economy.

Recession-bruised states’ revenue sank 30 percent in 2009, Census Bureau reports

By Michael A. Fletcher, Washington Post Staff Writer , Wednesday, January 5, 2011; 11:09 PM

The recession blew a huge hole in the already shaky finances of state governments, causing them to lose nearly one-third of their revenue in 2009, according to a Census Bureau report released Wednesday. . .

At the same time, states are grappling with swollen social service caseloads, underfunded pension funds and flat revenue – a situation that will worsen as federal stimulus aid comes to a halt in the coming months.

Future federal help is considered highly unlikely, as Congress and President Obama have put a greater emphasis on reducing spending and trimming the huge federal budget deficit.

The new census report adds to the bleak portrait that has emerged from other studies documenting the damage caused by the economic downturn, while making plain that states are likely to continue struggling fiscally for years.

“This report paints a fairly compelling picture of the impact of the recession on states,” said Susan K. Urahn, managing director of the Pew Center on the States. “There are many states predicting that they’re not going to return to pre-recession levels of revenue until 2014.”

Our Monetarily Sovereign, federal government, which has the unlimited ability to create money and pay bills of any size, refuses to give the states the support they need. Meanwhile the monetarily non-sovereign states, which do not have money-creating ability, suffer, and more importantly, we citizens suffer from reduced services and increased taxes.

Education, police and fire protection, roads and bridges, medical services, pensions and on and on, all reduced while our federal government sits on its unlimited pile of cash. Our federal leaders believe they are being fiscally prudent, while in fact, they are destroying America.

Their ignorance hurts us all.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind me of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”

–What can save California?

An alternative to popular faith

California is broke and billions in debt. It’s unlikely California can pay its debts with tax increases and/or spending cuts, either of which could destroy the state’s economy. Tax increases and spending cuts always cause national recessions; the same would likely happen to California.

The best solution for California, and for all the other states in financial trouble, is to have the federal government step in with the necessary billions, which it easily could do. The government merely would credit California’s checking account at the Federal Reserve Bank, and debit its own balance sheet — a step it can take as easily, as repeatedly and as endlessly as the Rose Bowl scoreboard changing a score.

However, that won’t happen under current circumstances. The debt hawk belief that federal deficits are a problem, makes such support politically toxic. There are, however, two events which could force the federal government’s hand: Bankruptcy or disaster.

If California were to announce it planned to declare bankruptcy, businesses world wide would be threatened with ruin. Remember, California is one of the largest “nations” in the world — reputedly the 8th largest ( CALIFORNIA ) ahead of Russia and Spain. The federal government could not ignore such a threat, and would have to pay some or all of the bills, by a direct infusion of money.

Or, it could delay the inevitable, by lending California money ala Greece. (Loans to GM and Chrysler et al do not provide a model, because California cannot lop off large sections of its business and turn away from its citizens as companies can. So such loans, or even loan guarantees, just would put California deeper in debt.)

The other “solution” for California, though having terrible human consequences, would be to undergo a sufficiently large disaster, the most likely being a huge Los Angeles, earthquake, perhaps in the 8.0+ range. The government would declare LA County, perhaps even Southern California, a disaster area, and step in with the billions necessary to rebuild. Many of those billions would spread around the state, allowing the economy to recover.

Yes, FEMA didn’t rebuild New Orleans as it should have, but Louisiana doesn’t have California’s political clout, with only 9 electoral college votes compared to California’s 55.

I don’t know whether Governor Schwarzenegger has begged hard enough for federal support. Perhaps he is waiting for “the Big One.”

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity

–Why the states are in financial trouble

An alternative to popular faith

Most of the states are deeply in debt. Some of them even have stopped paying their bills. I live in Illinois. It is a deadbeat state. Our newspapers run editorials suggesting solutions to Illinois’ huge budget problems. These solutions detail tax increases and spending cuts. Sound familiar?

Neither solution will work. All states, counties and cities should understand why even the most well considered tax increases and spending cuts cannot solve their financial problems.

Yes, Illinois has among the most dishonest groups of political leaders. And yes, Illinois ranks in the upper 10% of the most distressed states. But it’s not entirely the fault of our crooked politicians.

No political entity, whether it be country, state, county or city can prosper and grow, unless it either can create money or obtain money from outside. Spending reductions reduce services and negatively impact the economy, which reduces tax collections in a never-ending downward spiral.

Tax increases merely circulate money within the political entity.Additional money is needed, because even nominal inflation reduces the real value of money. Imagine that together, the state of Illinois, its counties, cities and citizens, owned a total of $100 billion. To balance its budget, Illinois decides to raise taxes, which takes $10 billion from taxpayers and sends it to the state, which then sends the $10 billion back to the taxpayers when it pays its bills.

What has happened? Essentially nothing. There still is a total of $100 billion in the state, except after a year, even with a modest annual inflation of 2%, this money now is worth only $98 billion in purchasing power. After ten years of 2% annual inflation, that same money now is worth less than $82 billion.

Another reason the states, counties and cities cannot survive on taxes alone: Federal taxes remove money from the state every year, and as the money supply declines the state’s economy declines.

Unlike the federal government, Illinois cannot create money at will. It must obtain money from outside its borders. There are but two sources of outside money. One is exporting. We can send goods and services to other locations, which will send us money. But it is quite difficult for any state’s exports to exceed its imports by enough to grow its economy and stay ahead of inflation. An oil-rich state like Alaska and a tourism state like Nevada, both have money coming in from outside. But even these states eventually need a source of additional income.

And that source is the federal government, which in 1971 ended the gold standard, giving itself the unlimited ability to create money, not supported by taxes. By comparison, Greece is not so fortunate. It is limited by the “euro standard.” Illinois is limited by the “dollar standard.” All three standards limit money creation.

Despite fears of “big government,” the federal government must assume more financial obligations. As states, counties and cities continually raise taxes, they find they are in a never-ending, futile cycle, not just because of inefficient management, but also because it is long-term impossible for any political entity to survive, much less grow, without the ability either to create its own money or to receive money from outside its borders.

Rather than pundits calling for ever higher taxes and/or reduced spending, neither of which add to the money supply, they should demand more federal support. Mathematically, that is the only lasting solution.

In summary: The anti-big-federal-government crowd fails to take into consideration the fact that unlike the federal government, the states, counties and cities are unable to create money. When any political entity is unable to create money, its economy will stagnate, unless it receives funds from outside. Worse than stagnate, its economy will decline because inflation makes its own money lose value.

Ongoing economic growth demands ongoing money growth by the federal government.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com