Ilargi
The Automatic Earth
California needs $7 billion within days, just to pay state employees’ salaries. Other states have cancelled road building projects, and who knows what else. And we haven’t even started the crisis. Neither will the $700 billion alleviate their problems.
Governments at state, county and town levels face a multifold whammy. They can’t get access to credit, since the bond market died. They have lost billions though faulty investments. Their tax revenues are starting to plummet. And their budgets are all based on insanely positive economic expectations. And this is where we all will first see the crisis turn from a somewhat detached far-away one into a force that hits us smack upside our heads.
We will very soon see widespread cancellations of services, multi-million lay-offs, defaults of pension funds, crumbling roads and even serious challenges to essential provisions such as water treatment. There is no way the federal government can bail out every lower level of government that needs money. It is simply not going to happen. The only remaining option is sharp increases in taxes, but that is a dead end: citizens are already broke, their home values are sinking, they are losing their jobs, and the last thing they’ll accept is rising taxes across the board. More
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