[taxabletalk] Russ: Blinders Here, Blinders There

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Posted by Russ:
Blinders Here, Blinders There
http://www.taxabletalk.com/posts/1227714471.shtml


   [1]The dysfunctional California legislature was unable to resolve the
   budget fiasco yesterday. Democrats proposed a plan that would have
   tripled the car tax and made a few symbolic budget cuts; Republicans
   refused to vote for it because they want a permanent measure mandating
   spending limitations.
   The new legislature is sworn in next week. Unfortunately, I suspect
   that the only difference will be the names and Sacramento will be as
   dysfunctional as ever.
   This is having an impact on California's ability to sell bonds.
   Interestingly, the prices for bonds may imply that the state has a
   huge risk of bankruptcy. [2]At least that's what a British commentator
   has said.
   And California isn't the only state in such danger. Michigan, Nevada,
   and New Jersey are on the list, too. Let's look at each in turn.
   Michigan is likely on the list for two reasons: the troubles with the
   automobile industry and the state's miserable business climate. The
   automobile industry dominates Michigan and there's a real chance that
   the entire Big Three (GM, Ford, and Chrysler) will declare bankruptcy.
   There's even a higher risk of huge job losses as these companies are
   going to have to restructure. Meanwhile, the government in Michigan
   raises taxes on all businesses--I'm sure that's attracting lots of
   businesses to Michigan....
   Nevada has hit a downturn, too. But there's a big difference between
   Nevada and California. [3]The legislature in the Silver State and
   Nevada's Governor have reached an agreement on a short-term solution
   (though there appears to be some smoke and mirrors with that). And
   Democrats there appear to have some sense of fiscal reality. Steven
   Horsford (D-North Las Vegas), Nevada Senate Majority Leader told AP,
   "All of the options are very difficult choices...They hurt Nevada
   citizens in different ways, and none of the options are good ones. But
   we have to balance this budget in the short term."
   [4]New Jersey has a huge crisis with its pension plan. "New Jerseyâs
   pension fund has lost more than $23 billion this year, dropping to its
   lowest level since 2003 as a collapsing financial market battered its
   investments, a new state report shows...The latest losses â nearly $9
   billion in October, and another $3 billion so far this month â mean
   the fund is now worth $57.8 billion, or less than half the $118
   billion in benefits it is due to pay out over time." New Jersey's
   pension plan expects an 8.25% return in 2009 and [5]one commentator
   bluntly said, "That simply is not going to happen."
   Indeed, pension problems are likely occurring in many states. New
   Jersey invested in the market. That's great during upturns but not so
   good during downturns. How many other pension bombs are out there? I'm
   sure there are plenty.
   It's always better to confront your problems now than to wait until
   later. At least in Nevada they appear to be doing that. Here in
   California and in the swamplands of New Jersey the blinders remain on.

References

   1. http://www.mercurynews.com/ci_11072414
   2. http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/11/25/bankruptcy_update_britain_plus_california
   3. http://www.forbes.com/feeds/ap/2008/11/26/ap5746550.html
   4. http://www.nj.com/news/index.ssf/2008/11/pension_funds_lost_9b_in_octob.html
   5. http://globaleconomicanalysis.blogspot.com/2008/11/state-of-new-jersey-is-insolvent.html