Stating the Case; No State Prosperity, and National Prosperity is Questionable

One thing that I watch closely is the health of the finances of the states.  Because they don’t have a printing press, and most of them have to balance their budgets, they are a better read on the health of the economy than national statistics.

As it is, states are cutting their budgets drastically because their tax collection is down dramatically.  California is a leading example here.  Will it refuse to pay, and what of its municipalities?  How many will file for Chapter 9, like Vallejo?  My guess is that many municipalities will file Chapter 9, but that California will avoid nonpayment.

There is one more issue worth pursuing here.  Though states have to run balanced budgets (largely on a cash basis), that says nothing about pensions and other long-dated promises.  I find it fascinating that some states are still trying the gambit of pushing retiree expenses out into the future.  To me, that is a sign of desperation slightly smaller than making significant budget cuts.  It’s just playing for time at a time where delay has few advantages.

That’s one reason among many that I do not see “green shoots” at present.  During a period of debt deflation, many troubles fight prosperity as the financing bubble deflates.  If the states aren’t prospering the nation is not either, regardless of what statistics the national government might dream up.