By Monty Pelerin, on February 7th, 2010
Image via Wikipedia
Headlines focus on the economic crisis at a national level. We hear about US deficits, problems in Greece, etc. Just as important and just as large as some of the Eurozone countries in the headlines are individual states in the US. While they are mostly out of the day-to-day headlines, a crisis is brewing that will not be solved easily.
Gregor MacDonald states:
I’ve identified seven large US states by four criteria that are sure to cause trouble for Washington’s political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims.
These states stand in the same relationship with our national government as the crisis states (PIGS: Portugal, Ireland, Greece and Spain) in Europe. Neither group can print its own money, yet both groups are desperately in need of same.
MacDonald does a nice job of analyzing the problem here.
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Continue reading The Almost Forgotten Problem
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By Monty Pelerin, on November 19th, 2009 Rolfe Winkler posts on gold and states: “Gold is surging because investors see that the Federal Reserve — more concerned with deflation and unemployment than sound money — may be trapped in a never-ending cycle of monetary accommodation.”
He concludes that we and other Western governments are insolvent as shown in the following chart:
Winkler concludes with “So gold won’t make you rich. But it may protect you from becoming poor.” Read his case for gold here.
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By Monty Pelerin, on November 10th, 2009
Image via Wikipedia
“We stand on the brink of a financial challenge of unprecedented magnitude in the history of this state,” he added. “This is a historic moment. We’re going to have to make historic decisions.”
This language could have come from the most of the leaders of state and/or local governments in this country. This quote comes from Governor David Patterson of NY state. The story is detailed in a NY Times article here.
What is going on in NY is going on in California and other governments around the country. The blunt fact is that governments at all levels are going to have to shrink. Government may be the last bubble of this economic cycle. It has grown faster than the general economy for multiple decades. It has done so in both good and bad times. It has raised taxes on its citizens when times were bad and good, making it harder for individuals to get by. Arguably, government has never had to sacrifice. It is conditioned to growth, regardless of economic realities. It does not comprehend the idea of real cuts. Even in the worst of past times, it has managed to make only pretend-cuts.
The stimulus package from the Federal government provided large sums to states. This funding was akin to giving a drink to an alcoholic. It temporarily made them feel better instead of the drying out that is required. Reality is starting to sink in. But it is a false or limited
Continue reading Political Turnaround Specialists Needed
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By Monty Pelerin, on October 26th, 2009
Image via Wikipedia
A nice article detailing the recent history of the dollar. The fact that the dollar has declined 79% in the last 9 years versus the Euro is shocking. What is even more astounding is that it has declined so much against a currency not backed by a country and a region that has underperformed for decades. The socialistic economies of “Old Europe” have been stagnant for many years, especially regarding job creation. What does this say about the US for the past 9 years? Obviously it has implications for our economy, regardless of what government-reported GDP statistics say. It says even more about our loose monetary policy which would reflect even more directly into exchange rates.
The image to the right depicts a unit of currency issued by the United States of America. On the back is the phrase: “In God We Trust.” To the extent that the dollar has much value left, it may be as a result of this phrase. I assume that means it is less valuable to atheists than believers, but that is purely speculation.
Published on zero hedge (http://www.zerohedge.com)
Home > Euro Bests Dollar by 79% in This Millennium
Euro Bests Dollar by 79% in This Millennium
By asiablues
Created 10/25/2009 – 21:42
By Economic Forecasts & Opinions [1]
The dollar’s value against major currencies has fallen in recent months as the U.S. fiscal outlook worsened and amid expectations that interest rates will remain close to zero
Continue reading The Dismal Dollar
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By Monty Pelerin, on October 11th, 2009 Just ten weeks after the new budget, California is going deeper into the red. For years states have been using various accounting gimmickry to meet legal budget limits. All of this profligacy and coverup is now being revealed in this downturn.
Several points might be relevant here. California is probably not salvageable because the Feds cannot afford to bail them out along with the other states in similar condition. Even now, states and the Federal government seem unable or unwilling (probably the latter) to recognize the magnitude of the economic crisis. The strategy of wallpapering over the cracks caused by the sinking foundation still appears to be their only solution. Why not? It always worked in the past. But the past is no longer. We are in the “new abnormal,” a condition unlike the past 30 years. Arguably that period might be labelled the “old abnormal” because of the credit explosion that created an unsustainable boom. The “new abnormal” will see the reversal of this process with a de-leveraging period that could last for a decade or more. As this occurs, spending will drop well below norms as savings is increased. Unemployment will continue at high rates. This process will be painful and long. The “new abnormal” will be characterized by a lower standard of living than people expect or want. It will produce lower tax revenues, too low to sustain overbloated
Continue reading 8th Largest Economy Continues to Implode
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Friedrich von Hayek
Friedrich von Hayek founded the Mont Pelerin Society.
“Monty Pelerin” is a pseudonym chosen by this blogger to convey general agreement with the philosophy, goals and spirit of the Mont Pelerin Society. No other connection exists between the blogger and the Society.
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