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alstry (35.42)

Municicpal Emergency Now Crisis

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July 30, 2008 – Comments (10)

In my previous post, the source cited the governor's comments as follows:

Last year, the top 16 banks paid $173 million in taxes last year; this year, its $5 million, a 97% decrease.

 

However, the NY Times cites it as this:

In June 2007, he said, the 16 banks that pay the most on their business profits remitted $173 million to the state treasury. “This June, just a month ago, they sent us $5 million — a 97 percent decrease,” he said.

IF the Times quotes is more fully accurate, no payments in June would explain the EMERGENCY.  State revenues are simply evaporating Abruptly!!!!!!  A similar situation happened in Georgia with revenues slowing in June dramatically compared to the rest of the year.  California is following a similar trend.

“Revenues are dropping dramatically,” the governor added. At the start of May, the state budget office projected a cumulative deficit of $21.5 billion over the next three years. Now, just two months later, that estimate has risen to $26.2 billion — “a staggering 22 percent increase in less than 90 days.”

“When I travel across the state, I see communities suffering,” Mr. Paterson said in his address, from the Red Room of the State Capitol in Albany. “Everywhere I go, I meet people who are losing their jobs and their homes. I meet families who are forced to pay more for gasoline and for food while their paychecks stay the same. Next winter, some of these families will have to choose between heating their homes and feeding their children. The rising cost of health care means that they cannot afford to get sick.”

http://cityroom.blogs.nytimes.com/2008/07/29/paterson-warns-of-economic-crisis/index.html?hp

As I indicated in earlier posts, it appears the situation has taken a dramatic downward turn in the past few months as evidenced now by Georgia and New York. 

Without much of any revenues coming in from financial institutions to our local governments...we are running out of road pretty quickly.  Obviously July can't be doing much better or else there would be no need for an EMERGENCY MEETING.

 

10 Comments – Post Your Own

#1) On July 30, 2008 at 5:15 AM, alstry (35.42) wrote:

Demon,

Continuing our previous conversation....I completely agree with you that if the FED starts printing money without limits....IT WILL BE MUCH WORSE...for ALL.

However, I think the FED won't go there....in the Great Depression it was a liquidity crisis(we were a growing industrial nation) and printing would have been the solution....here we are dealing with a solvency crisis...something I don't think the current FED governor ever contemplated.

No matter how much you print.....you can't force people to buy...unless you want to be Zimbabwe....and this time I mean hyperinflation since we are now a consumer nation.

Right now the vast majority of the FED action is simply to replace existing defaulting debt which is simply keeping the banks solvent and having little stimulative effect on the economy....if the FED really wanted to have an effect it would have to send at least $10K($600 was simply an interest payment without much stimulation) checks to every man woman and child....now that would be a $3 Trillion dollar stimulous package and about offset one year of stimulation from the loose lending practices of the past few years. 

However, I don't think such behavior is likely from the FED as it realizes its problem is very different than what was contemplated when Benny made his earlier speech you cite.  Printing money in a solvency crisis does no one any good....including the FED.

I am not sure anyone ever contemplated the day when the US would be insolvent at the individual, business, and NON federal government levels all at the same time.

That is pretty much the issue in a nutshell and hope it explains my position.

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#2) On July 30, 2008 at 5:49 AM, AnomaLee (28.64) wrote:

These institutions need to downsize anyway, but if you want to help the consumer and production economy --- instead of giving a one time pork barrell tax cut --- why not cut the corporate tax rate and legislate a mandatory x-5% wage increase and continue that action in a progressive downtrend for two or more years if you want to stimulate the real economy?

It won't neccesarily change the volume of money that has already expanded, but it should change the velocity of money. It seems that it would be one of the fastest way to cycle 'additional liquidity' throughout the economy to middle-class consumers without disrupting the tax-base through temporary Keynesian tax cuts -- considering the money will only get taxes again anyway. It seems more responsible considering the widening gaps between inflation and wages. Minimum wage is set to increase this year, but that effects -- Well, only the minimum...

Now, this isn't my personal view on how things should be but it just seems to make sense to preserve the current system and is different than any price tampering tried by Keynesians over the years, and there are plenty of other options that could be tried through our over-complicated tax system as well.

Taxes and government policy effect behavior more than anything, and no bubbles are created without them. We'll be getting our next bubble in energy investments eventually...

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#3) On July 30, 2008 at 7:40 AM, DemonDoug (73.55) wrote:

I agree with your argument that the Fed shouldn't print.

However, Bernanke is basically solving the problem by doing his best to prevent a deflationary collapse.  In short, he's solving the problem of the 1930's, not the 2000's.

Also the fed wouldn't send money to individuals.  Bernanke said it himself, they wouldn't spread the money "willy nilly."  What this means is that the money would be circulated through the big banks that deal directly with the Fed.  He has also encouraged Congress to pass the bailout bills, and I mean when you look at Chris Dodd, who basically spearheaded the whole bailout bill, he is more or less owned by Wall Street.

I think like you stated in the previous post, the only hope is if Obama wins and kicks Bernanke to the curb and installs a Fed Chairman who isn't dropping money everywhere in the hopes that all the problems will eventually work themselves out as long as we juuuuust keep inflation going.

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#4) On July 30, 2008 at 8:03 AM, alstry (35.42) wrote:

Demon,

Money is not circulating through Big Banks.  Right now banks are doing their best to raise capital to simply offset defaulting debt and maintain reserve requirements.

MER's writedown yesterday is only going to amplify the problem.

If the revenues to the people, businesses and governments is not sufficient to service debt....more debt is going to default.  There is tens of trillions of dollars of debt sucking trillions out of the economy just for interest payments.

The Feds current behavior is barely covering the servicing of debt....and not even coming close to stimulating inflation.

If $3 of debt defaults for every dollar printed, that is contraction.  Right now that is the way I see it unless things change.

Further, now the junk is really going to hit the fan has revenue declines is really starting to accellerate.  Without revenues....money can't be spent.

We have both made out points...we will have to see how things play out.

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#5) On July 30, 2008 at 8:07 AM, alstry (35.42) wrote:

THE CONTRACTION KEEPS CONTRACTING

NEW YORK:

“We will cut spending. Government will learn to do more with less.” He called for help from business and labor leaders and New York’s representatives in Washington to support him.

He added, “It is time for New York and other governments to cut up our credit cards. The era of ‘buy now and pay later, and later’ is over. The faster we address this crisis, the faster and stronger we will emerge from it.”

SEALED AIR:

It also set plans to reduce its workforce by 5%, or 900 to 1,000 jobs, and to close or consolidate some of its smaller facilities.

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#6) On July 30, 2008 at 8:39 AM, dwot (47.53) wrote:

Doug, Bernanke thinks he's doing what he thinks would solve the problem in the 30s.  There is no proof that it would...

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#7) On July 30, 2008 at 1:37 PM, jesusfreakinco (28.92) wrote:

Al,

Your post has given me some hope.  As much as I'd hate to see Obama elected for social reasons, with Volcker at his side, perhaps his election is the only possible way to prevent Helicopter Ben from inflation us into a severe inflationary environment.

However, as I think you would agree, by January it may already be too late.  

As it relates to stimulus, you know another bill is coming - it is an election year.  This and next year's deficits will be back to back record years.  The Fed and Congress is spending me and my kids into serious debt and I ain't happy 'bout it :(

JF 

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#8) On July 30, 2008 at 2:01 PM, AnomaLee (28.64) wrote:

Since no one commented on this I just read this and would like to re-inject this...


In rich America, Third World inequality
There are 469 of them, by the latest count of Forbes magazine. In 1982, when the magazine started its annual list of the richest Americans, there were just 13 billionaires. Today, the United States has the largest gap between rich and poor of any Western industrialized country. In terms of equitable distribution of income and wealth, the U.S. is closer to Iran, Argentina or Mexico than to Canada or Germany. (That is according to the Gini index, a complex statistical measure of inequality named after Corrado Gini, the Italian economist who devised it in 1912.)
---------------

One of the largest problems has become wealth concentration and power concentrated into few institutions because we are now a financial(paper producing) economy based on appreciation and not production.

This has all happened because of excess consolidation, M&A, and less competition. Intended destruction (de-merging) is healthier than watching the eventual destruction as what's happening to GE or Citigroup or any eventual collapse in this financial economy.

Before anyone b*tches about stealing from the wealthy they need to re-think economics and understand that this 'wealth' was built on appreciation which was built on savings, which came from average people who desposited their savings which were used to fund this appreciation...

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#9) On July 30, 2008 at 2:37 PM, AnomaLee (28.64) wrote:

As much as I'd love to see less printing and higher interest rates I don't know if the next president wants Paul Volcker to turn him into the next Jimmy Carter, and we have a guy who's yelling 'Hope for America' and another guy who wants to use more caffeine to stimulate the economy.

Remember, in the 1970's it was the belief of Federal Reserve Chairman, Arthur Frank Burns, to maintain maximum employment and maintain an unemployment of around 4% Jimmy Carter got rid of George Miller and appointed Paul Volcker as 'the cure' 

I wasn't alive then, but that's what I read. Anyway, I don't think anyone is going to get re-elected if yields are 20% or if mortgage rates are around 10% and unemployment spikes to 10% unemployment. That was the result of Paul Volcker's cure for inflation. That's not very hopeful or stimulating for a politician.

I see the chances of this happening being 10%. I don't want to sound bleak but the inflation problem persisted for nearly a decade and a half during that period. We're just 5-6 years into this episode, and we're still receiving more foreign investments.

There's plenty of money of in the economy. It's just not circulating through the economy the same and the reason is government trade and tax policies. The Nasdaq bubble and real estate bubble were fueled by ridiculous tax incentives and they still are. There hasn't been a bubble in history that wasn't exascerbated or prevented by an encouraging government and its policies.

If their were legislature that passed that would close the tax-free incentives on real-estate I guarantee a lot of builders would STOP building and a lot of buyers on the side-lines would start buying. If the capital gains tax were equal to your tax bracket(which is similar in other countries) I guarantee bubbles volume would dry up and you would've never seen the Nasdaq bubble.

Canada has a capital gains rate of 50% how often do you see a bubble there? Japan of 26% to prevent another bubble and is candidly outperforming all the G-7 nations in real terms.

Every country with a capital gains rate around 15% is now seeing dramatic inflation and the largest decreases in their stock index. See China at 10%

If oranges were taxed 90% and apples were tax free everyone would buy a hell of a lot more apples... That's why policies are more important and people pay too much attention to the Fed.

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#10) On July 31, 2008 at 6:43 AM, DemonDoug (73.55) wrote:

Doug, Bernanke thinks he's doing what he thinks would solve the problem in the 30s.  There is no proof that it would...

On this point, deb, we are in 100% agreement.

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