Woes Mount From Los Angeles to Philadelphia on Drops in State Aid, Sales Taxes
The link to the article is above. I won't bother to copy the text. It is all too clear for anyone who can read words and, more importantly, who are literate about finance.
Cities - Mandated to have balanced budgets- States - Mandated to have balanced budgets
- Federal - No mandate for a "legitimate" balanced budget and thus uses smoke and mirrors to hide the infected wounds. They also have the power to print money and sell debt to investors
There is loose coupling between the three tiers of government listed above. The lower tier is dependent in some way upon the receipt of financial resources from the higher tier. Ultimately there must be some measure of organic economic production at the local level to contribute to the nation's balance sheet. The economic value of our nation is based upon our gross production. The "funny money" that is created out of thin air can only be used to maintain our standard of living beyond which our productivity can speak for - for a short period of time before the debt that is generated makes the entire system collapse.
At the present time the United States' economy - $12,000 billion in debt but with expectations of it to grow to $21,000 billion in 10 years - owes its very existence to the willingness of our investors to keep purchasing the government's debt.
Think about it. Our present national productivity is around $14,000 bill per year. The federal budget is approximately $3,600 billion. The key point here is that the difference between these two numbers is the productivity of the various companies, non-federal governments and other economic forces that are present in our nation.
While it is true that over time this $14,000 billion aggregate economic figure will surely grow over time the Production to Debt ratio is clearly out of kilter for anyone to be comfortable with this nation's future as a going concern. I know that as an individual - someone who's personal debt load starting to approach their annual income would surely cause them to be deemed a major credit risk. Chances are they are never going to be able to pay off their debt. Worse - if they aren't even intending to in the first place.
The market forces have a built in means of correction. As the debt grows so does the interest payments that are due upon these debts. Better still - the tendency to create more "magic money" to pay off the increasing debt payments will cause the investors who must purchase the debt (Treasury Bond) to make note of the Ponzi scheme that is at play and thus cut off the debt addict from access to more funds.
Clearly there is some upper limit to the debt that can be amassed.
Clearly it is rather foolish for someone to become more dependent than ever upon a system who's foundations are so shaky.
The Cities At A Point Of Desperation
Shift down to the city governments. Many of them are desperately struggling to maintain the STANDARD OF LIVING that the American people living within their boundaries have been used to. We expect the police and fire to come to our rescue in minutes. We won't accept that the bridge that spans the river is out and thus we are effectively cut off until some substandard repair is made. We expect the government to come through with the social contract which says that no citizen will fall through the cracks - this despite the grievances that are heard about our present health care or education system.
When I attended the "Fiscal Wake Up Tour" nearly 2 years ago this is what they talked about. At present there is a widening gap between the expectations of the "standard of living" that many Americans look to receive and our ability to pay for this high level of quality. They are the one's who educated me about the "crowd out effect" that our increased load of interests payments will have upon the ability for our government to provide for our standard of living.
Most of all - before the presidential elections had even kicked off - they told the audience that - more than any other message - "The Next President Of The United States was going to have to level with the American people and tell us all that we are not likely to be able to afford the standard of living (per government services) that we had become accustomed to". The willingness to make cuts and appropriate tax increases now would save us from more draconian cuts and losses in the future.
Thus when I see the eroding financial base of the various cities and then the states - the present tendency to look toward the central government to allow them to make it through without much drastic belt tightening simply insures that the national debt load will continue to explode, possibly up to the point of a fatal structural failure.
There is a clear ideological and political attempt to "nationalize" the finances of our nation. The imperial federal government stepping in to take an increasing amount of power and control over more elements of our lives. What might be able to get us by on the short run and thus evading pain is likely going to hasten the rupture.
Worse yet as cities look toward external funding sources, as the article indicates - they frequently expand their spending habits due to the abstraction between their own bottom line upon their productivity mandates and the needs which are being assisted by this outside hand.
DISTRIBUTED PRODUCTION INSTEAD OF CENTRALIZED
Some points seem fairly obvious to me. It seems to me that the best way to insure the long term endurance of America is to focus upon maintaining our productivity at the periphery and in turn insuring that each of the local economies, despite their loose coupling to the national economy, assumes the ultimate responsibility for making the decisions that are necessary for them to insure their own organic sustenance and growth.
This might indeed mean that some imbalanced results might be had as one location applies policies that prove more productive or even that they make use of their competitive advantage with respect to their location and natural resources. The point remains, such a system also causes decisions that are made in the context of the need to "keep the lights on" rather than those which neglect their need for organic production because they focused upon the "social justice rights" that they are to receive as American citizens and looked toward the central government to fulfill that need.
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