Cities and states can’t keep up with spending.

If the government starts pulling liquidity or stops spending at current levels, even more of the one in four jobs that depend either directly or indirectly on government spending, will be lost and more consumer spending lost and more profits lost and more tax revenues lost.

Since much of the spending is by city and state governments, the Federal Government has even more of a problem. If they don’t prop up the city and state governments, they create their own self-fulfilling cycle of layoffs. The more they cut spending, the more people that supply government get laid off. The more they are laid off, the more tax revenues fall and the more cities and states have to cut spending.

This is only now, becoming reality. Cities and States were under the belief they could whether this out for year or so until the economy and employment picked up. Now, they realize the U.S. economy won’t be taking part in the global economic recovery for years, even if the global recovery is real. Estimates from 7 to 12 years for employment to return the 5% level. The Fed has said,reportedly in a recent meeting, “no net new jobs for five years.” They will be lucky to create enough jobs to just keep the unemployment rate at this level or whatever it peaks at.

That is a killer for city and states who have to help the people not working at the same time tax revenues continue to fall.

The cities and states are now starting to make big cuts in spending in anything they can but, that will lead to more layoffs in the private sector. So, should the Federal Government borrow some more and bail out the cities and states so they can maintain current levels of spending?

The cities and states are a perfect example of why doing the right thing (cutting spending) makes things a lot worse, but, not cutting spending eventually destroys them too. It just delays things awhile.

That is what the Federal Government is facing too, only on a massively larger scale.

JanPaul.

Related Posts:

• As long as you have stops to protect from a big drop and you got in early, you should be ok.
• “When the people fear their government, there is tyranny; when the government fears the people, there is liberty.” Thomas Jefferson
• Even the Government site reports U-6 at 13.5% and if you counted it the way the did during the 30’s it is closer to 18%
• It takes years of deleveraging before jobs can come back.
• There were not “fewer jobs lost”.

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