October 13, 2008
Doug McIntosh
Lost in the overwhelming national and Federal economic chaos of the last few weeks, a local fiscal collapse of stunning magnitude is happening. It is happening at the city, county and state level with a direct result upon the entire country's population. Several states are having multibillion dollar deficits. Counties are cutting services at record rates. Cities are filing bankruptcy. Whatever the losses on Wall Street; whatever futile and feeble attempts by government officials to deal with those, the reality is the economic collapse is having its most devastating effect at the local level. Tip O' Neill, President Reagan's nemesis in the House of Representatives in the 1980's once said "All politics is local." He was correct.
Medicine tells us one of the first symptoms of a stroke is tingling in the fingers followed by pain in the shoulders and sweating. We are now seeing this in the economic sphere. While everyone has been focused on the nausea of the stock market, the other symptoms have been ignored. Retirement is a decade or more away for those people who are howling about IRA losses in the stock market. The fact a city will refuse to respond to certain 911 calls is happening already. The fact of city, county and state employee layoffs is right now. The fact of service cuts is right now. The cuts will get worse. They will spread throughout the USA like a cancer cell expands throughout the body. Academic arguments about the size of government not withstanding, we will see the process continue. It will speed up now that October 1st has gone.
The process has been ongoing for several months now. California has been at the forefront of the fiscal collapse. California has overspent for decades now. It has finally caught up to them. Whatever games the politicians in California play, whatever economic shell games, con games and scams they come up with, is of no use anymore. California is now demanding a $7 Billion bailout from the Federales. Other states are starting to make the same plea. The reason they are doing this is the credit collapse is spreading. The ability to issue bonds is failing. It is failing not only in the commercial, small business and financial sectors. It is failing in the municipal, governmental and institutional sectors. Whether it is a city, state or county, a small business, a hospital, an airport or a college, there is no money to be had. The Federal Reserve's Field of Dreams moment has come and gone. "If you build it, they will come" has turned into "If you loan the banks money, they won't loan." The Federales have apparently despaired of the banks and are now creating a $100 Billion credit fund directly for business.
Why not? Isn't that what Mussolini did? It is called direct government control of the economy. To save capitalism, we will create fascism is the new Federales mantra. The collapse of local government will no doubt lead to the creation of direct Federal guarantees and loans. I have a better idea: why don't the Federales just let the states keep the money they already collect for the Federales? 10th amendment and all that subversive stuff. Oh well, just a thought.
It is now clear to me, the first tangible effects of our current economic collapse will be in the fiscal policies of cities, counties and states in the USA. It is there, people will feel the first gust of the hurricane headed our way. It is at the local level people will truly understand the new reality in the USA: there is no money. The reason there is no more money is there is no more ability to issue debt. No debt means no money. As each city, county and state in the USA goes on a cash and carry basis, the reduction of local government services will increase. As that spreads we will start to see the social chaos I have long predicted. The rain falls on both the just and the unjust they say, but the feces falls on the poor. We are looking at the total reform of local government solely due to the fact there is a reduced ability to fund local services. No services means no rewards and no loyalty by local voters. It also means the end of the bloated, utterly corrupt and abysmally incompetent blobs currently called local government. The public unions can howl all they want, it will do them no good. The unions will be like the brain letting the rest of the body die so that oxygen, i.e., money, can keep flowing to them. Doesn't matter. There is no money.
For some it will be the end: the weak, the disabled and the elderly. For others it will be a new beginning: the taxpaying classes among others. For the rest of us, it will just be painful as we adjust to the new local government reality. The growth of government has been fueled by one ability only: the ability to fund social programs for one group by taking money from another to pay for it. That ability has been maintained recently by the ability of government to issue debt and convert that debt to money used to fund social programs. Now that both the original money, as well as the debt used to replace it are failing, can the collapse of the social programs be far behind? The process has begun and it resembles the making of a sausage, or the use of a wood chipper.
It is truly ironic to me this one thing. As the Federal and Global governments grow more insolent, more corrupt and abusive, the local governments simply collapse into paralysis. The central governments either do not see, or understand, this paralysis will soon spread up the food chain to them. Sort of what happens when the mercury reaches the top of the food chain and a man eats a swordfish. History is cyclical. A new cycle begins and another ends. Amen.