Washblog

Countrywide CEO indicted - OK, a gimme.

Hedge fund indicted for fake tax shelters - let's note that their clients included former President Clinton.

Banks not going forward with FDIC plan to sell troubled mortgages - plan has been pulled due to lack of response, blamed partially on the fact that they'd have to take the writedowns upon sale (this is my favorite datum on this list).

Bernanke says we need to get on a path to balance and toward smaller deficits.

Rio Tinto deal now being questioned.

And in the follow-up email you would of course expect this:

...the Rio Tinto deal officially cratered tonight.

But what you might not expect is this:

State Tax Revenues.

Some examples from NY Times:

Washington State sales tax revs down worst-in-nation 14%.
Corp income taxes in Oregon down 44%.
Income taxes in NY down 49%!!!!!!!

Sales tax up in 8 states, and personal income tax collections up in 3 - North Dakota, Alabama, and Kansas.
29 states are down in all major categories.

Collective budget gap for the fiscal year ending this month for all states was estimated at $102 B (which seems low) and is projected at $121 B for next fiscal year.  Again, this seems low to me, but I live in California.

So I called my capitalist pal (whom I now label a "Contra-Democrat" rather than a "Republican" since he voted for Obama and against Prop 8). I noted with interest his sudden concern about government finance and added: "Hey, we've got to remember the city and county governments."

To which he replied:"Yes, there may come a time when we all say to each other: 'Hey remember back when we had city and county governments?"

That $121 billion in deficits (which I agree is a lowball estimate) doesn't take into account the cities and counties, which are often highly dependent on property taxes. Ouch.

Together we reckoned that there are about 18-20 million state and municipal workers in this country. My friend was a management consultant so I asked him what he thought the effect on those workers would be:

"Well, governments shed workers slower than businesses, so I'd say about 7% of them get the axe."

"So, about one point two five million workers?"

"Yeah, about that."

"At about, what, 50K in compensation?"

"Sure, about $60 billion in wages."

"Well, that's bad. Now how do the states and municipalities come up with the rest of their deficis?"

"Kite checks."

And with that we parted in good cheer.

The take-home there is not about the $60 billion or governments kiteing checks, since I think we all knew that was going to happen. The take-home is about those one and a quarter million people who will lose their government jobs. While the CBO said that "unemployment will likely keep rising through 2010 to peak over 10 percent", in fact the expected state and municipal job cuts are enough all on their own to drive unemployment to about 10.1-10.2% - and states and municipalities are planning to start those cuts next month.

Add to that the planned, permanent job cuts we know will happen at Chrysler, GM, their dealerships and suppliers and we are talking about 10.3-10.4% unemployment, minimum and in short order. Even that number assumes the rest of the economy not only doesn't shed any more jobs but actually makes up for the knock-on job losses that will come from shutting government offices and facilities, as well as car plants and dealerships.

This is important enough for the sake of the people who will lose those jobs, but there's more to think about:

For unemployment, service cut and other reasons that shall remain nameless in this particular missive, prudent people have to plan for another deflationary wave to hit us. The coming of this wave makes it absolutely essential that people like our friends in Olympia **NOT** make decisions that leave the institutions which support our economy denuded, abandoned and broken. Interest rates are still low. Now is the time to borrow-and-educate, borrow-and-reform, borrow-and-build - not the time to burrow and hide from voters.

Legislators will find than they can run, but they can't hide.

They must decide whether they believe the state of Washington is destined to be a development and innovation center for the world's future or a "failed state" - a quagmire of inequality, poor education and social ills that can't get out of its own way and is therefore not worth the investment. Will we use our gateway to the Pacific and high-tech accomplishments to challenge beleaguered California's economic leadership or will we quit?

Now is the Winter of 2008 made glorious Summer by this native son, Barack Obama. I think now is the time for hunchbacked Democrats, used to stooping for Republican hypocrisy, to straighten up and fly right.