Wednesday, 5 January 2011

The next US financial crisis?

There's a fascinating article on CBS on the impending financial meltdown which will occur when state Government's bills come due and it becomes clear that there is no money left in the various pots:
In the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole iln their public pension funds.

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.
The article features Chris Christie (Gov. New Jersey) heavily, something I wholly endorse as one of the few politicians who's A) willing to speak his mind in an honest fashion B) doesnt seem to care what people think about him, so long as he's doing what he sees to be his job.
Then there's New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers.

Gov. Christie acknowledged that's a lot of jobs. "I canceled it. I mean, listen, the bottom line is I don't have the money. And you know what? I can't pay people for those jobs if I don't have the money to pay them. Where am I getting the money? I don't have it. I literally don't have it."
It's always a little startling when a politician makes choices which are hard and then doesnt try to cover it up or give an excuse, I've come to the conclusion that its simply not fair. In our jaded age we deserve the opportunity to try and decipher what our politicians think through a series of buzzwords and half truths, its more fun that way. Christie is just spoiling the game by saying whats actually going on and why.

I can't imagine this story can play out in any good way, and it forms another compelling strand in the story of America's increasing structural weaknesses. I dont pretend to understand the complexities of State vs Federal funding, but if States can't pay their bills a lot of people will lose their jobs, and the USA as a whole will have to pay for those people somehow.

Further bailouts are of course possible, but will only service to weaken the already weak dollar, and this will only deal with the short term problem, not the longer term issues, particularly pensions.

More politicians like Christie might help, men who are willing to make brutual decisions in the short term to secure the long term, but they are few and far between, no matter where you go.
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