Posted on 07/13/2012 6:30:34 AM PDT by Kaslin
San Bernardino, Calif., has now followed Stockton into bankruptcy.
Harrisburg and Scranton, Pa., and Jefferson County, Ala., home to Birmingham, are already there to welcome them.
Detroit has been taken into receivership by Michigan. A plan under discussion is to level a fourth of the city and reconvert it into the pasture and farmland it used to be a century ago.
On the Web, one may find a pictorial tale of two cities: Hiroshima, a smoking flattened ruin in 1945, now a beautiful gleaming metropolis. And Detroit, forge and furnace of democracy in 1945, today resembling Dresden after Bomber Command paid its visit.
Other American cities are exploring bankruptcy to escape from under the mountain of debt they have amassed or to get out of contracts that an earlier generation of politicians negotiated.
No longer shameful, bankruptcy is now seen as an option for U.S. cities. The crisis of the public sector has come to River City.
What happened to us?
In the Reagan-Clinton prosperity, officials earned popularity by making commitments that could be met only if the good times lasted forever. They added new beneficiaries to old programs and launched new ones. They hired more bureaucrats, aides, teachers, firemen, cops.
Government's share of the labor force soared to 22.5 million. This is almost three times the number in the public sector when JFK took the oath of office. These employees were guaranteed job security and high salaries, given subsidized health care, and promised early retirement and pensions that the private sector could not match.
The balance between the private and public sectors shifted. As a share of the U.S. population, the number of taxpayers fell, as tax consumers -- the beneficiaries of government programs and government employees who run those programs -- rose.
The top 1 percent now pays 40 percent of the income tax. The top 10 percent pays 70 percent. The bottom half, scores of millions of workers, pay nothing. They ride free.
This could not go on forever. And when something cannot go on forever it will, by Stein's Law, stop. The Great Recession brought it to a stop. We have come to the end of the line.
U.S. cities depend on property and sales taxes. But property tax revenue has fallen with the collapse of the housing market. Sales tax revenue has fallen as a result of the recession that has kept the consumers out of the malls.
Revenues down, cities and counties face a choice. Raise taxes, or cut payrolls and services. But if taxes rise or workers are laid off and services decline, Americans in our mobile society move across city and state lines, as they are moving from California to Colorado, Nevada and Arizona.
This does not end the crisis, it exacerbates it.
Bankruptcy not only offers cities relief from paying interest to bondholders, it enables mayors to break contracts with public service unions. Since the recession began, 650,000 government workers, almost all city, county or state employees, have lost their jobs. Millions have seen pay and benefits cut.
The salad days of the public sector are over. From San Joaquin Valley to Spain, its numbers have begun to shrink and its benefits to be cut.
A declaration of bankruptcy by a few cities, however, has an impact upon all -- for it usually involves a default on debts. This terrifies investors, who then demand a higher rate of interest for the increased risk they take when they buy the new municipal bonds that fund the educational and infrastructure projects of the solvent cities.
Cities and counties have no way out of the vicious cycle. Rising deficits and debts force new tax hikes and new cuts in schools, cops and firemen. Residents see the town going down, and pack and leave.
This further reduces the tax base and further enlarges the deficit.
Then the process begins anew.
This is what is happening in Spain and Greece, which have reached the early 1930s stage of rioting and the rise of radical parties.
Since the New Deal, Keynesianism has been our answer to recession. As the private sector shrinks, the public sector expands to fill the void until the private sector returns to health. Only Keynesianism is not working.
Obama gave us an $800 billion stimulus and four deficits totaling $5 trillion. The Fed tripled the money supply and put interest rates at near zero. The banks are flush with cash. But the engine will not turn over.
What about supply-side tax cuts? But with the Bush tax cuts still in place, taxes are generating the smallest share of gross domestic product in decades.
How much bigger a deficit should we run?
Liberal economists are saying, deficits be damned, print money and spend. With Republicans blocking tax hikes and Democrats resisting cuts in Medicare, Medicaid and Social Security, all eyes turn to the Fed.
As Milton Friedman said, "Inflation is the one form of taxation that can be imposed without legislation."
“And the article is right, the final hail mary in this thing will be inflation followed by hyperinflation. I think that will be followed by WWIII. In fact, I have little doubt, if any, that that will be our fate.”
If this is the case, then the victor of the coming war will be the nation (or nations) that can best withstand the ravages of inflation (and later deflation), to emerge with the least damages.
Here’s a one-minute video that tells a good story:
http://www.youtube.com/watch?v=TYKAbRK_wKA
Reminds me of the scene in the movie "Last of the Mohicans" where the English fort in the wilderness is beseiged by the French, and the French are gradually, through sheltered trenches, bringing up a large mortar which will eventually breach the fortress wall.
I think your comments would have had weight a decade or so ago, but it’s too late now.
And the reason I strongly believe that nationally, they’ll go for the nuclear option (inflation) is becuase there is no other solution. If we go for the kind of austerity that would actually matter, there would be violent rioting. And government has become such a major part of our economy that if we dramatically cut spending, we would dramatically shrink the economy, and the death spiral would increase.
We are literally in a “damned if you do, damned if you don’t” scenario. The only solution is to inflate as long as you can to put off the inevitable. And the inevitable is very close.
The only thing that will work, ultimately, is to hit the reset button. That is always rather nasty and never done by choice.
—...Copybook Headings...—
Were you a COBOL programmer too?
—If this is the case, then the victor of the coming war will be the nation (or nations) that can best withstand the ravages of inflation (and later deflation), to emerge with the least damages.—
Depends on how the war is fought. I think it may be a culmination of bible prophesy.
“the engine won’t turn over’........
Vapor lock from all the Obama & Democrat hot air.
Actually, “Yes”, once upon a time.
But, I’m a little slow this morning ... what’s that got to do with “Copybook Headings”?
I did see it, but it was so long ago now that I don’t even remember it all that well. Maybe I’ll watch it again.
When I see the word “copybook” I immediately go back to my days of being a COBOL programmer. I spent a 36 hour shift fixing an implementation error at a large bank when a couple of key programs did not pick up the new database copybooks and loaded data in the wrong place on our IMS databases.
I had to write a program to find the bad records and then write another program to fix them.
Also, COBOL is the only context I have for the word “copybook”.
My context for "Copybook" is Rudyard Kipling's Gods of the Copybook Headings.
Foretold the next century from the vantage point of 1919.
Description of "Copybook" in this context here
WOW! I’d never read it. How applicable it is today. Amazing.
Thank you.
Pat Buchanan ran for President. He is right today and was right 12 years ago when Pat said the illegal immigration was an invasion and that we shouldn’t trade with China.
You’re welcome.
I quote from it frequently.
I wouldn’t bet on it.
I wouldn’t bet on it. The public sector will let civil order collapse completely before they will stop feathering their nests.
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