In spite the seemingly sanguine outlook radiated by the key markets, which appears to be reflected on many economic indicators as to signify a 'recovery', fiscal conditions of US states continue to languish.
That's because the profligate spending during the boom days haven't not been filled by falling tax revenues amidst the recent recession until the present. And this has resulted to huge budget deficits for US states.
The chart below by Casey Research shows of the dramatic fall of State revenues over the last 12 months.
According to Casey's Bud Conrad, ``The important point is that the revenues are still in decline, indicating that we are not yet out of the recession."
State fiscal conditions are lagging indicators.
Nevertheless last year's collapse in State revenues, which appears to have bottomed, still reflects on the fragile state of the US economy.
Moreover, the enormous deficits will likely entail a drastic austerity (cut in social services and bureaucratic personnel) or raise taxes or entreat for a Federal bailout in 2010 or a combination of these measures.
The Center on Budget and Policy expects budget shortfalls for the 48 States at an estimated $193 billion for 2010 and $180 billion for 2011, or some $350 billion for the next two years.
Possibly compounded by the deficits haunting the US public pension system and the still struggling real estate industry whose next wave of resets [see 5 Reasons Why The Recent Market Slump Is Not What Mainstream Expects],may further place additional strains on the crisis affected States, the Federal government may likely to opt for a bailout route.
And in accord with Minyanville's Todd Harrison who recently wrote,
``States across the union -- particularly those that benefited from the housing bubble and the taxable income associated with it -- are now experiencing a massive reversal of those golden years. The decline is so swift that it will take several years for the real estate reset to flush its way through municipal budgets.Additionally, The US public pension system -- one of our 2009 themes -- faces a higher-than-expected shortfall of $2 trillion that will increase pressure on strained finances and further crimp economic growth, according to the chairman of New Jersey’s pension fund, as quoted in the Financial Times.
``This evolution should lead to a comprehensive Federal bailout package in 2010. TARP money returned to the government will likely be funneled back to the states, including but not limited to Arizona, California, and New York, as taxpayers shoulder the load and bear the burden of our outsized societal largesse."
Finally, while authorities appear to be engaged in a rhetorical deliberation towards a transition to an "exit" mode, where administrative (but political) therapy is supposed to pave way for organic growth dynamics, it is my view that 2010 will continue with policy accommodations (a euphemism for inflationism).
Nonetheless the string of prospective interventions will also likely put pressure on US savings, as shown in the chart below from Bloomberg's chart of the day...
...where government expenditures have more than offset accrued savings from individuals and corporations.
To quote the Bloomberg article,
``The savings shortfall widened to negative 2.3 percent in the first three quarters of last year from negative 0.2 percent in all of 2008. Before 2008, there hadn’t been a full-year drop since 1934, the last year of a four-year period when rates were below zero.
``Deficit spending by the federal government reduced net savings at an annual rate of $1.33 trillion during last year’s third quarter. State and local government deficits widened the gap by another $14.9 billion. At the same time, personal and corporate savings increased by a record $983 billion."
The grand question is who gets to finance this shortfall? The answer of which is likely to determine the fate of the markets for 2010.
That's because the profligate spending during the boom days haven't not been filled by falling tax revenues amidst the recent recession until the present. And this has resulted to huge budget deficits for US states.
The chart below by Casey Research shows of the dramatic fall of State revenues over the last 12 months.
According to Casey's Bud Conrad, ``The important point is that the revenues are still in decline, indicating that we are not yet out of the recession."
State fiscal conditions are lagging indicators.Nevertheless last year's collapse in State revenues, which appears to have bottomed, still reflects on the fragile state of the US economy.
Moreover, the enormous deficits will likely entail a drastic austerity (cut in social services and bureaucratic personnel) or raise taxes or entreat for a Federal bailout in 2010 or a combination of these measures.
The Center on Budget and Policy expects budget shortfalls for the 48 States at an estimated $193 billion for 2010 and $180 billion for 2011, or some $350 billion for the next two years.
Possibly compounded by the deficits haunting the US public pension system and the still struggling real estate industry whose next wave of resets [see 5 Reasons Why The Recent Market Slump Is Not What Mainstream Expects],may further place additional strains on the crisis affected States, the Federal government may likely to opt for a bailout route.
And in accord with Minyanville's Todd Harrison who recently wrote,
``States across the union -- particularly those that benefited from the housing bubble and the taxable income associated with it -- are now experiencing a massive reversal of those golden years. The decline is so swift that it will take several years for the real estate reset to flush its way through municipal budgets.Additionally, The US public pension system -- one of our 2009 themes -- faces a higher-than-expected shortfall of $2 trillion that will increase pressure on strained finances and further crimp economic growth, according to the chairman of New Jersey’s pension fund, as quoted in the Financial Times.
``This evolution should lead to a comprehensive Federal bailout package in 2010. TARP money returned to the government will likely be funneled back to the states, including but not limited to Arizona, California, and New York, as taxpayers shoulder the load and bear the burden of our outsized societal largesse."
Finally, while authorities appear to be engaged in a rhetorical deliberation towards a transition to an "exit" mode, where administrative (but political) therapy is supposed to pave way for organic growth dynamics, it is my view that 2010 will continue with policy accommodations (a euphemism for inflationism).
Nonetheless the string of prospective interventions will also likely put pressure on US savings, as shown in the chart below from Bloomberg's chart of the day...
...where government expenditures have more than offset accrued savings from individuals and corporations.
To quote the Bloomberg article,
``The savings shortfall widened to negative 2.3 percent in the first three quarters of last year from negative 0.2 percent in all of 2008. Before 2008, there hadn’t been a full-year drop since 1934, the last year of a four-year period when rates were below zero.
``Deficit spending by the federal government reduced net savings at an annual rate of $1.33 trillion during last year’s third quarter. State and local government deficits widened the gap by another $14.9 billion. At the same time, personal and corporate savings increased by a record $983 billion."
The grand question is who gets to finance this shortfall? The answer of which is likely to determine the fate of the markets for 2010.
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