re:<<Later tonight I'll try to post some interesting anecdotal
evidence of a serious shoe yet to drop... major cutbacks
in state and local governments due to huge budget shortfalls.>>
I see an article in WSJ. Excellent timing, I must say...
Budgetary shortfalls at the state, county, and local
city government levels are causing massive cutbacks,
layoffs, and emergency measures.
And while that article in the Wall Street Journal covered
the story at the "state" level, the real story is at
the local level.
bigpicture.typepad.com
ie: Look at the "state" of Indiana on this map from the
WSJ article quoted here on the Big Picture website, it's
shown as being among the healthiest in the midwest. At
the state level it may be, but only because of a recent
change in property taxex which transfers the budgetary
crisis to the local government level:
bigpicture.typepad.com
Indiana revised it's property tax system a couple of years
ago, which was met with voter upheaval. It's now slashed
property tax rates statewide, which has decimated local
county and city level tax revenues.
Take the city of South Bend for example, here is a how
one Indiana city is handling the budget crisis:
From the South Bend Tribune:
wsbt.com
SOUTH BEND — City leaders dove head first into next year's
budget Monday night, searching for ways to plug a projected
$18.2 million shortfall in revenue over the next two years.
Deep cuts are forecast, including more than 200 layoffs, and
the closing of parks, pools and other city facilities.
Over the next two years, city administrators project the loss
of property tax funding will force them to lay off more than
200 city employees, including 53 firefighters and 40 police
officers. That adds up to 15 percent of the city's total
workforce.
Cites like Elkhart, and Ft. Wayne Indiana, are experiencing
the same budget crisis. Both cities are highly leveraged
to manufacturing, Elkhart to the Recreational Vehicle
Industry, and Ft. Wayne to the Automobile Industry. And I
can posts similar articles from 6-8-10 local newspapers
from Indiana, Illinois, and Michigan.
That map from the WSJ does not reflect the reality of
just how bad things really are because it does not
reflect the real crisis at the local city, and county
levels.
But, what is really disturbing, is that we are just in
the early stages of the layoffs, and cutbacks.
Unemployment in Elkhart County, went from 4% in May 2007,
to 5.9% in May this year. But, historic peak levels were
experienced with unemployment rates as high as 11-13% in
the 1980-82 recession, and it appears they may once again
be headed for double digit unemployment.
The local school system is in crisis, with over 60% of
children qualifying for state aid, free lunch, and tuition
programs last year, before the economic downturn started.
Just last week, a major RV manufacturer (Monaco Coach)
announced plant closings, and consolidations of operations
to Oregon, permanently eliminating 1,400 jobs.
Once again, this is just starting, and it isn't going to end
soon, as cities are already talking about cutbacks into 2010-11.
In many of these communities, the city, and county governments
are the largest, or among the largest employers. These are
the equivalents of major plant closings.
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What's different for the Industrial Midwest in this
recession vs. 1980-82, is there is no savings to fall
back on - given America's credit binge that has left
us with a "0%" savings rate.
And for those that can save -- there is no return for
savers. In 1980-82 you had CD's and bond rates in the teens,
vs. low single digits today.
And there is no wage inflation. Workers who did have jobs in
1980-82 had rising wages, and that is not true today.
And today, we have a systemic crisis in the banking system,
and the global financial markets... and a War in Iraq, and
Afghanistan.
Another worry... is that states not levered to manufacturing
or, the "old economy" are perhaps even worse shape than
the industrial midwest - ie: Florida, and California.
This weekend I'll expand on my thoughts on deflation.
The greatest misconception people have, is that they fail
to understand that "deflation" was used as an offensive
weapon during the Great Depression.
Those that ran the Fed did not drop money from helicopters
to make that historic transfer of wealth and power, they
collapsed money supply.... and cash became king, and they
then stepped in and snapped up assets at pennies on the
dollar.
Remember this and never forget it:
"The Fed does not pull the strings -- they dangle at the end of one."
You may want to listen to March Faber on this Bloomberg
Video vis a vis the discussion we've had on the Fed,
and money supply and credit:
... at around the 11 minute mark, he says this:
quote: "I have never seen in my life, such a credit growth
deceleration in such a brief period of time. And that will
have a very negative effect on the economy."
bloomberg.com
I am not saying that America is falling into deflation.
What I am saying is this...
That traders have better understand that we are experincing
simultaneous inflation and deflation, and that commodities,
including gold, are not immune to interim deflationary
pressures.
And in the long term... perhaps the greatest mistake that
traders will make - is assuming that inflation is the
weapon of choice among those who pull the Fed's strings.
It wasn't in 1929... and it may not be again.
Mo later this weekend,
SOTB |
