Sunday, March 18, 2012

Printed Dollars to Wreak Havoc on State Budgets

Countries worldwide are spending more than they raise in taxes. People are beginning to realize that the funding for all of this is unsustainable over time. In Greece, rumor has it that they will need a further bailout down the road (May or June). Was the EU able to solve Greece’s financial problems? Notice, nobody showed up at Greece’s doorstep with tons of gold to buy off the creditors. Europe didn’t raise taxes to bail out Greece; they did a Fanny and Freddie refi--get a payment today and worry about it again next month.

Us old farts understand inflation. The loaf of bread we paid 20 cents for as a child is now two dollars. Being a millionaire in today’s world just doesn’t have the same cachet as it did back in the 1960’s. The high school graduates today, have read about inflation but have yet to experience it. The price of gasoline just went up 50 cents a gallon last week and Obama has appointed an Oil Speculation Task Force to look into the matter. Gas is still a dollar cheaper in Mexico. So we can pretty well deduce that Obama hasn't got a clue on this one.

Our government is facing a "Catch 22" situation. Tax receipts are decreasing because of the economic slump. Wages are pretty much frozen. So when the government prints dollars, the normal expectation is for wages to rise in lock step with inflation, which in turn increases taxes collected, and that isn’t happening. The extra printed dollars have lowered the average person’s standard of living while at the same time raised governments fixed costs of doing business. Using this example, it is easy to see that the reduced standard of living (from the ability to consume less-i.e. higher energy costs) has the same effect as a tax increase. The government’s problem; they collect the same amount in taxes, but it doesn’t go quite as far, as it did the year before. (Now how can that be?)

California’s latest update of tax receipts for February of this year looked a bit abysmal when compared to last year. Corporate, personal and sales tax collections have dropped a total of 23%. See the chart below.
With the 25% increase in the price of gasoline and the 23% decrease in the State’s tax receipts, any State service that consumes fuel (police, fire, ambulance, school bus, highway repair etc.) is going to get a very unpleasant reality check. Remember, no State cuts to entitlements (unless you're feeling suicidal).

There is some good news though; California’s food stamp participation is the second lowest in the country. The reason, the welfare offices are too overwhelmed by demand --- the State can’t afford the staff needed to cope with the problem (I'm not making this up). And naturally in an election year, Obama has ads running informing voters about their possible eligibility for the food stamp program. The November election could reflect a change in attitudes this year. The Democrats will be too tired or too mad to vote the party line after trying to sign up for food stamps.


Anonymous said...

Deficits have gone WAY beyond any sort of normal limits. So has the national debt. So has private sector debt. So has the money printing. So has the bailouts. So has the mal-investments.

The solution to all of the problems that we have as a result of borrowing and spending is... more borrowing and spending?!

Whatever happened to basic accounting and business common sense? All the rules have been flushed down the toilet.

The political class don't seem to care. They get their high salaries, their special pension plan, their special health insurance. Stay in office term after term after term. Life is good for them.

The states can't print money so what are they going to do? I guess borrow from Ben.

California is headed for a brick wall.

How does this all end?

New Oregonian said...

California's tax situation does not surprise me in the least. When gov't stops serving taxPAYERs, payers go to states that will serve them. You're losing the people paying at least $10k/year in state taxes, and losing the businesses and economic benefits that go with them.

California holds taxPAYERs hostage. They cut the services most important to honest, law-abiding, productively-employed citizens in order to convince voters to approve tax increases. It is a disingenuous game; they never truly contemplate balancing the budget, they simply game the voters into approving ever-increasing taxes & fees.

Productive citizens need to feel safe, #1, and California doesn't feel safe anymore. You have sanctuary cities while actual crimes reports are now handled by phone - police can't be troubled! #2, Productive citizens need to feel hopeful. As employers flee and schools become more juvenile detention than education, hope dies. Only the IPO crowd still believes that California will provide their children a better life.

There are manufacturing companies, founded in California, that are building new US plants. The founders still live in Sili Valley, but the new plants are being built in other states.

California is run by high school governance. The kids don't care about education; their little student governments worry about dances and fund raisers and special fun color days. That's California. Don't fix crime, budget deficits, education, economic growth - ban plastic bags and incandescent bulbs! When did "progress" change to mean destruction with a side of whimsy?

At least citizens can vote against states by moving. There's no starving the Federal beast.

Anonymous said...

I lived in California since 1975. My business and my wife's business are both taking off. We are expanding and will have a major increase in income for our household.

Guess what? We're moving to Nevada where there is no state income tax and where the government is much more business friendly.

Going to dissolve our Calif corps and create new Nevada corps. It's much less expensive to own a corp in NV.

We love California geographically... have always hated the government.

We still want and plan to spend a lot of time here in Calif but it will be in a "vacation home" while our domicile will be NV.

This California liberal oppressive government will learn its lesson as its debt continues to soar and as its revenue collapses from all the people and businesses that are leaving.

The common denominator of all government is... STUPID.

Anonymous said...

Not all people can afford to live in Manhattan and not all people can afford to live in California.

There is a place for everyone but there must be a reason why people pay to live in these places?? you'll figure it out when you move out but i guarantee there will be someone ready to move in.

Only place with the climate of southern califonia in the world is Rome. People tend to migrate towards Mediterranean climates, it has been the case for thousands of years.

funny thing is that business's like google, facebook, adobe, intel, and a bunch more are so dumb that they haven't figured out it is better to move to people crack me up. the entire world is dumb and you guys are the smart ones!!! sure...

New Oregonian said...

Anon 10:11 - several of the companies you mentioned are expanding - outside California. So if they're so smart, why aren't they investing in California? Any idea where Intel's biggest location is? They're building huge new fabs and offices, but not in California. Lots of data centers going in here, too, including several of the companies you mentioned.

California's problem is that the biggest taxpayers - the billionaires - are few. The major bill payers are the mid to upper middle class. If government fails them, and their employers are building in states that do better, they'll leave. Which leaves fewer breadwinners carrying the load of retiree pensions and welfare. Sure, new people are moving in - but relatively fewer high-wage-earning, high-tax-paying folks are moving in than moving out.

Anonymous said...

Anon 10:11,
Per current statistics, more people and businesses are migrating out of California now than ever.

Bottom line takes precedence over weather.

Jim in San Marcos said...

Hi Anon 10:11

Your quote " the entire world is dumb and you guys are the smart ones!!! sure..." sounds a bit off of the mark.

Pardon me if I rewrite it to read "the entire world doesn't give a damn but a few of us do."

There were a lot of smart people that bought homes in 2006. They don't feel so smart today, and I don't sound so dumb to them anymore.

All this blog can do is try to fit the pieces you have together in a meaningful way. There is no guarantee that I am right, all we are talking here is common sense. And I think, even you will have to agree that there is a very severe shortage of it.

AIM said...

Out of the last 10,000,000 people that have migrated into California only 150,000 of them were taxpayers.

California contains 10% of the US population and has 30% of the US's welfare population.

Businesses and the wealthy are continuing to leave. Calif raising taxes will just be a catalyst and expeditor for further migration out.

California is suffering a brain drain, wealth drain, employer drain, entrepreneur drain, etc.

California used to be the 8th largest economy in the world.

We've had inept, corrupt, evil or heavily manipulated government leaders in this state over these decades and they have ruined this state.

Next... Calif will ask the Feds for a bailout.

This state is circling the bowl.

AIM said...

Yes, this is just another indication of the unavoidable inflation that will hit us all.

The US government, Congress, The Federal Reserve, etc. are all totally locked into their memes (false data, false ideologies, unworkable or inapplicable policies, etc.).

The hubris, stubborness, self-interests, hidden agendas and "need to be right" will prevent any change from ever occurring.

The only way for there to be a chance for reform is when our "leaders" finally run us into an unsolveable crisis socially, fiscally, or monetarily (and of course all of these collapses are on the horizon).

So the best strategy to follow in my opinion is to not waste your time with "how things should be" or "how can we fix this", etc. because we are on a runaway train that won't stop until it hits a wall.

The strategy is to understand these government leaders and institutions to the best of your ability. Be alert to every change and policy action they make and then quickly decide how you can use it to your advantage or how you can avoid the consequences of it. Follow very carefully what the goverment is doing and act accordingly to protect yourself.

This is no way for a citizen to have to live but for now it is the only way to have a chance of surviving or thriving.

Let's just hope that after the collapse that it is a benevolent person or group that steps in to pick up the pieces and not another Adolf.


Anonymous said...

Good answer to 10:11. As time has progressed in this financial crisis, I have noticed that the posts on this blog have become more cynical, more confrontational. As Celente has suggested, when Americans begin to lose everything, they just lose it (mentally). Perhaps this 10:11 poster has a stake in an overbought home in CA.

Anonymous said...


Celente says "When the people have nothing to lose, they lose it."

Anonymous said...

Hey 10:11. Think about it. Since when have corporations, governments or any big group or institutions been smart? They get big, cumbersome, wasteful, arrogant, complacent and one hand doesn't know what the other is doing, and so on and so on.

It is the INDIVIDUAL that is smart and who makes positive things happen. Rarely ever a group. Only the few carry everyone else upon their shoulders.

Think about it. Look at history. It's only INDIVIDUALS that contribute and leave legacies for the future to benefit from NOT governments, countries or corporations.