Day of reckoning

[gunnyrogers55]

By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.

It has gotten much less attention because each state has a slightly different story. But 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.

What can we do to stop what only is going to happen from happening without making the federal government any bigger than it already is?

 

[william the wie]

Wrong section, belongs in economy, but good thread. You have too narrow a range of outcomes listed. States have defaulted before and the votes for bail out are simply not there nor is the financing. What is being considered is a voluntary state bankruptcy law similar to the municipal bankruptcy law on the books.

The major problem is that many states have been losing house seats for decades or in the case of the left coast their fast growth spurt is over. Budgets and union contracts were drawn up on the basis of everything staying static and it hasn't. That is kind of strange because this is the third time NY and NYC have been on the border of bankruptcy since 1900: 1900s and 1970s saw the last two bailouts. Although you have to go further back for IL and Chicago this is a third time for them as well: the aftermaths of the Crimean and Russo-Turkish wars led to huge drops in grain prices. CA too is going through another normal crisis.

Energy prices and water availability is undermining the old population centers. The left coast is unlikely to see actual economic depopulation but growth relative to the rest of the country is pretty much a thing of the past. But the west is stabilizing. East of the Mississippi and north of the Ohio and Potomac line relative depopulation has been the rule for two centuries and could turn over into actual depopulation quite quickly. That means the tax base can and will erode fast so the heading to the exits problem will keep getting worse for decades until the northeast mindset changes.