Uh oh

John Seiler:

As I keep reminding people, California isn’t the world’s “eighth largest economy,” as our politicians like to flatter us, but an integral part of the United States and its economy. And that economy, despite a minor ongoing “recovery,” is sick. A second downturn is on its way. When it hits, California’s state budget deficit, currently $25 billion, will grow even larger.

Which means that Gov. Jerry Brown’s call for increasing taxes $12 billion to help cut the deficit (plus $12 billion in spending cuts) won’t work. There still will be a deficit. Plus, the tax increase will slam businesses and citizens just as they’re hit by another round of layoffs and drops in housing prices. In fact, the latter already is here.

On his blog, Powder Blue Report, my friend Allan Bartlett writes of the realities:

This is one of the most important posts that I will ever write. I don’t say that lightly because over the years I have spilled a lot of electronic ink on a lot of different subjects. This one has been building for awhile and it’s time for me to unleash it.

The United States will soon be bumping up against the statutory limit of the debt ceiling. … this means that the United States Treasury can’t float bonds over and above a limit set by a law passed by Congress.

Let’s go over some numbers and some simple math. I like to say that “math doesn’t lie” and it’s true. Currently (as of 2010), the United States takes in $2.2 trillion dollars in revenue and spent $3.5 trillion. This means that the US government must borrow the difference of $1.3 trillion….

If we don’t pass a debt limit increase, the Congress will be forced to live within its means (i.e, spend only what comes in and nothing more). It would be like passing a balanced budget amendment. The deficit spending would end immediately.

You and I both know that this scenario will never happen. Congress will pass a new increase in the debt limit despite the rhetoric coming out of the new GOP majority. Am I skeptical? You bet I am. I know the track record of all these idiots in both parties. Past performance is indicative of future results.

What if the debt level isn’t increased? Would the sky fall down? Bartlett:

We are still taking in $2.2 trillion in taxes and various revenue that flows into the Treasury. What would have to happen though is that every line item in the budget would have to get cut by 37%. That’s right….37%! Medicare would get cut 37%. Patients would have to make up the difference to doctors. Social Security would get cut 37%. Retirees would see their monthly paychecks get cut by 37%. Spending on defense, foreign aid, FBI, Homeland Security, and all discretionary programs would have to take a 37% whack.

Do you see this actually happening? No way, Jose.

We’ve painted ourselves into a corner. We’ve run out of string. We’re at the end of our tether. We’ve run out of rope. We’re at the end of the line. (Throw in a few more cliche analogies if you want to.)

The House Republican “revolutionaries,” now that they’re actually in charge, only can muster $58 billion in cuts. So a deficit well above $1 trillion will remain. Which means soon the national debt will be more than $16 trillion — and rising.

There’s no good way for this to end, for California or America.

(Bartlett has more analysis in his full article.)

Jan. 7, 2011

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