Mounting State Debts Stoke Fears of a Looming Crisis

[Elmore Furth]

Source: NY Times

The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week.

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years.

Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.



Read more: http://www.nytimes.com/2010/12/05/us/politics/05states.html?_r=1&partner=rss&emc=rss

[Kaleko]

1. Dire warnings. Worth reading the whole article. n/t

[lib2DaBone]

2. Maybe the States will get together and bend Washington's ear about jobs...

.. because they certainly will not listen to the voters.

The corporations are too greedy to realize.... that if no one has a job.. no one has money to buy their cheap made-in=China junk.

Real "Rocket Scientists" at work in Washington.

[Citizen Worker]

3. We are long overdue for a national industrial policy and if the yahoos in the board room, on Wall St

and congress can't see the forest for the trees then it's time to sweep them all OUT. In a supply/demand economy both sides of the equation must be working. Supply is created through productivity and wages create demand just as wages generate revenues to keep government up and running. Perhaps we shouldn't wait let's just have a clean sweep.

[NeoConsSuck]

4. A way to kill the state unions

Republicans will block any aid to states. And the right wing media will do their bidding, oh how those state workers are lazy, overpaid, and have too generous pensions.

You can't continue to drag down the living standards of the private sector, unless you also drag down the state workforces with them. But somehow they manage to find money for tax cuts to the rich.

Government worker's living standards have remained fairly constant throughout the years. It is the private sector that has been getting raped by the capitalists under republican administrations.

If you starve the states, you starve their employees. This is all by design.

[annabanana]

5. +1 . . . .n/t

[bread_and_roses]

6. Got it in one

and all in line too with the "shrink the gov till you can drown it in a bathtub" aim of the Oligarchs

[IamK]

10. Privatization is already happening in cities, states are next /nt

[Auggie]

12. Already in discussion: California and privatized prisons

And welcome to DU

:hi:

[No Elephants]

16. yep. The plutonomy is a huge success and still building.

[Iowa]

18. Well said NeoConsSuck. I agree.

[LiberalLoner]

7. If you just remember they want 90% of us dead, it all begins to make sense. n/t

[Auggie]

8. Disaster Capitalism at work

A (mostly) Republican-made disaster to force "shocked" Americans into embracing free-market policies

http://www.naomiklein.org/shock-doctrine

[lunatica]

9. I saw that documentary a few weeks ago

It's scary. But that's what we have. The only difference is the coup on us has been a slow motion one which most Americans don't even realize has happened. Maybe the difference is that Americans have guns they're willing to use.

[Auggie]

11. That coup started January 20th, 1981

Guns won't make a difference. A well-informed, vocal and engaged electorate will.

[lunatica]

13. I was thinking that the government fears it's citizens

If they didn't fear us in some way then they'd do the same as Pinochet and others have done, which is take over with a quick and bloody coup. There's a reason why the US helps other dictators take over with violence, yet it's taken them a few decades to accomplish the coup here.

I fully expect the military to be used at some point in our future. They've pretty much trashed all the rest of our Democratic institutions and foundation. If they choose to use the military to put down some small uprising who's going to stop them?

Look at Spain and the air traffic controllers' strike. They sent the military in to take over. It can happen here.

Our government run by corporations has just done it slowly while no one was looking. There comes a point when they will have consolidated enough power to be much more open about what they're intentions are.

[timo]

21. where?

you show me where??? is there even one small group ready to go up against the government? Americans wont hardly even riot let alone shed blood...to fat,lazy,and not motivated enuff.

[No Elephants]

17. "Free" market costs trillions.

[xchrom]

14. recommend

[mike3121]

15. Rock and a Hard Place

A caller recently asked Rush Limbaugh if industry will ever come back to the US. "No," was his answer. He didn't want it to; too many evil union jobs. To most companies it's "the bottom line," to hell with the US worker, profits are all that matter. Now, we have a few progressives on the left that hate the US and want to see China take away our jobs. No heavy industry to despoil nature and such. God, we don't want the US to be great again.

Se the left AND the right are combining to crush the US worker.

[OlympicBrian]

19. Make sure to look at the graph attached to the article:

http://www.nytimes.com/imagepages/2010/12/05/us/05states_graphic3.html?ref=politics

[OlympicBrian]

20. Maybe it's not just default risk of muni bonds, but inflation risk as well?

The graph shows investors dumping muni bonds. Folks dump bonds if credit quality is viewed as decaying, or inflation is rising.

I found a solid handful of references to inflation buried in the most recent Federal Reserve beige book. But there is only a short reference to inflation in the summary--shorter than you would expect, given the handful of references inside the report.

I have no idea what Bernanke is talking about, when he says deflation is a problem.

Looks like inflation is being underplayed by the Fed.

Summary:
"However, some manufacturers in the Boston, Cleveland, Atlanta Districts have announced plans to raise their product prices in the near future. Retailers in Philadelphia and San Francisco noted price increases on selected products imported from Asian countries."

Look in the report for yourself...if you go into each district, there are plenty of references to inflation:
http://federalreserve.gov/fomc/beigebook/2010/20101201/default.htm

So, maybe it is no surprise people are dumping muni bonds. Who would want to hold onto these with both credit and inflation risk ahead?