Will Bernanke Monetize Municipal Debt Next? [View article]
Like the federal government, state, county and local governments are wasted with a cancer the public officials simply refuses to treat: insolvency, swollen services and highly paid unionized employees.
Rather than treat a solvency problem with the appropriate actions, we will simply kick the can down the road and allow current leaders to pretend the problem has been fixed with liquidity even though its not sustainable.
As far as the Fed goes, anything is possible with Bernanke at the helm and if the Japanese experience is any guide expect the head of the Fed to become increasingly desperate and consider what the Japanese are doing as we seem to following in their footsteps. From a press release:
The Bank will examine establishing, as a temporary measure, a program on its balance sheet to purchase various financial assets, such as government securities, commercial paper (CP), corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs) and to conduct the fixed-rate funds-supplying operation against the pooled collateral."
Memo to Local Governments: The Virtues of a Big Bang [View article]
Now, the same applies to the Federal Government, but the logic is trickier, because they will have to cut defense and entitlements, along with everything else. But who aside from Paul Ryan (from my home state Wisconsin) would suggest such an idea?
We need to recognize that survival of our governments is more important than all of the programs within the governments. Let the pain come as a “Big Bang,” and reduce funding everywhere. The municipalities that do this will find that their funding costs will be far less than those who don’t.
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There remain a gaggle of economists who keep insisting that we can keep borrowing and then grow our way out of this mess. These so-called experts however conveniently overlook the prospect for higher interest rates, the burden of debt service which grows with rates, crowding out of the private sector and structurally lower growth which is fundamentally at odds with the notion of growing our way out of debt. I believe it is already too late but inaction of congress will ensure a US debt crisis.
Will Bernanke Monetize Municipal Debt Next? [View article]
Rather than treat a solvency problem with the appropriate actions, we will simply kick the can down the road and allow current leaders to pretend the problem has been fixed with liquidity even though its not sustainable.
As far as the Fed goes, anything is possible with Bernanke at the helm and if the Japanese experience is any guide expect the head of the Fed to become increasingly desperate and consider what the Japanese are doing as we seem to following in their footsteps. From a press release:
The Bank will examine establishing, as a temporary measure, a program on its balance sheet to purchase various financial assets, such as government securities, commercial paper (CP), corporate bonds, exchange-traded funds (ETFs), and Japan real estate investment trusts (J-REITs) and to conduct the fixed-rate funds-supplying operation against the pooled collateral."
Memo to Local Governments: The Virtues of a Big Bang [View article]
We need to recognize that survival of our governments is more important than all of the programs within the governments. Let the pain come as a “Big Bang,” and reduce funding everywhere. The municipalities that do this will find that their funding costs will be far less than those who don’t.
______________________...
There remain a gaggle of economists who keep insisting that we can keep borrowing and then grow our way out of this mess. These so-called experts however conveniently overlook the prospect for higher interest rates, the burden of debt service which grows with rates, crowding out of the private sector and structurally lower growth which is fundamentally at odds with the notion of growing our way out of debt. I believe it is already too late but inaction of congress will ensure a US debt crisis.