Monday, December 3, 2012

Stimulus Lie:California & Greece...L&C

The title of this piece has many layers like an onion. When governments announce a plan to "move" the economy with stimulus, one gets the impression that a new idea is being used or an improvement to the current state of affairs is being implemented to uptick the economy and employment. This is the first lie. The second lie is the deception as to what the stimulus is really being utilized.

In the recent news the next Greek bailout funds are being released because the Greek government and the EU have come to a new understanding about Greece's debt, austerity measures and future growth for that nation. In this plan Greece will not have to pay interest on the money received for ten years, which will lower Greece's debt-to-GDP ratio to a more manageable level and allow some spending for growth with the hope of job creation. Sounds great, doesn't it? Unless you were a purchaser of a Greek bond because in addition, they're cutting the interest rate so you get less than what was originally agreed, you have to wait in doubt for ten more years before you receive any interest and who knows if there won't be a default before that time or what inflation will be. Who would buy anything from these people in the future? Good luck with that plan.

Now, how does this relate to California? Well, if the golden bear state were a sovereign nation, it would be in the top ten economies of the world. Not only that, it would be in the same bailout mode as Greece. When the US announces its yearly budget, there is pork barrel called stimulus for states. This money does nothing for the state economy except maintain the status quo. Like Greece, the money is used to pay debts, government workers, health care, pensions, unemployment or other benefit plans. Nothing new is created. No new schools, hospitals, bridges or roads built. It is money from Peter to pay Paul.

For Example

The Obama administration stated that the government would receive $2.480 trillion in revenues for 2011 when they submitted their budget in 2010.  The US only received $2.3 trillion. In one decade that means the US will add another trillion dollars just to poor management, just like in Greece and Europe. California does the same thing except state charters force state governments to balance their books, at least on paper.

With the recession in 2008, every state suffered. When the US government passed the stimulus plan in 2009, the states got in line. In that year, California had a deficit of $86 billion. It received $41 billion in revenues, leaving a $45.5 budget gap. Stimulus to the rescue. California, being the largest by population, got the most: $51 billion.

The California Legislative Analyst's Office(LAO) has given their outlook. The state will suffer budget gaps for the next five years. In 2011-2012=$25 billion short. In 2012-2013=$22 billion short. Get the picture? With all the talk about the debt ceiling, fiscal cliff, taxes and unemployment extension benefits, the real problem is how much are the states going to receive because in addition to California, there are 39 other states in need. The US and the Fed are lying to all of us about our current status and state of affairs. Fitch Ratings knows. They have already announced that if the states don't get money, they will downgrade their debt. I wonder if Fitch is aware of the next tidbit?

It gets worse because there is back story. The California books closed with a so-called balanced budget, however many bills were not paid and they were rolled over into next years budget. This year California will add $5 billion from unpaid bills and if you recall, when the former Greek prime minister finally got into the books, he found the same type of tricks which only makes things worse for Greece as well as California. It is going to be very ugly when these fiat accounting tricks get exposed and people line up looking for their money
Liars and Crooks: Congress, the President and the Fed when the true cost of all our deficits become known. If you recall President Bush kept both wars off the books and I only can imagine what else is not counted. I do know this, Social Security and Medicare are off the books and no one can estimate how much is needed each year from revenues to cover these benefits. God only knows what else can come forward as due payment. So, whatever is suggested by the two political parties, it will be rejected until the last minute as Obama the"appeaser" will cave, but his image will be he did it for the country. Image is everything and substance is nothing...for these people. I wonder what the image spin will be when the holders of debt get in line and want their money, NOW! End the Fed!