New Jersey Governor Chris Christie said U.S. states face a “day of reckoning” as they contend with looming budget deficits in the wake of the longest recession since the 1930s.
Christie, who cut $1.3 billion in aid to schools and municipalities this year to close a $10.7 billion deficit, said states’ pension and debt costs have grown to be “unsustainable.” Benefits, education and health care will be reduced in many states, he said in an interview aired last night on CBS Corp.’s “60 Minutes.”
“The day of reckoning has arrived,” said Christie, 48, a first-term Republican. Areas such as education and pensions “were third rails of politics. We are now left with no alternatives.”
The recession caused the biggest nationwide decline in state tax receipts on record, according to the nonpartisan Center on Budget and Policy Priorities in Washington. States have filled more than $425 billion in funding gaps since fiscal 2009; the combined imbalance is likely to reach $140 billion in the next budget year, the center said.
Christie faces a deficit of as much as $10.5 billion in the next fiscal year, the nonpartisan Office of Legislative Services estimated in July. Everything from worker pensions to prisons may face cuts as U.S. governors contend with a fourth year of budget deficits, incoming state executives said last month at a meeting of the National Governors Association in Colorado.
States’ fiscal stress may trigger a “spate” of defaults among local municipalities, Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008, said in the same segment on “60 Minutes.”
“You could see 50 sizeable defaults,” she said. “Fifty to 100 sizeable defaults” amounting to “hundreds of billions of dollars.”
The deflationary correction is well underway whether the central planners of banking want it or not.
No amount of money printing from Mad Ben Bernanke's press will "save" (aka re-inflate) the economy.
Credit continues to fall as banks become increasingly insolvent and unable to lend money.
Cities and counties continue to struggle with high, unsustainable debt loads.
States have also borrowed past their ability to repay.
Developed nations with their large bureaucracies, wide-scale benefits and entitlements funded with income and consumptions taxes too have borrowed from the future well beyond the possibility of repayment.
How the day of reckoning for nations will play out remains to be seen.
One thing is certain, the reality of lower living standards will be painful, and will be resisted vigorously by politicians and the public.
We may also see currency failures aka revaluations, as we saw in Mexico in the 1980s and in Argentina in 2002.
The failure, and unwillingness, to reject ponzi fiat currency financing and understand the simple concept of living within, or even below, our means by the public in developed nations, and by the politicians that represent them, will finally be resolved when the bond market refuses to lend at any interest rate.