when governments mismanage themselves to insolvency

[kunjuppu]

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http://www.nytimes.com/2010/07/03/business/economy/03illinois.html?_r=1&hp

the attached url is from today's new york times. it is about the u.s. state of illinois, where there is no money to pay its employees, pensions, medical bills and colleges.

so what do they do? borrow money from banks to pay immediate obligations and pass on the debt to the next generation. ridiculous as it sounds, many western societies including greece or the usa have been practising this fiscal fiasco policy in earnest.

why? you may ask.

soon after the exhaustion of world war 2, and also an antidote to communism, the western governments started building a cradle to grave welfare system. even the u.s. there are far more governmental subsidies and direct help to the average man than in india

eg. if you have handicapped child, the state will send you social workers to your home a few times a week, to give you break in child care and also help wash, clean and educate the handicapped child depending on the nature of challenge.

soon, the rich of these west societies, did not want to pay the increasing cost of these social welfare measures. including the middle class. together these who are mostly white, banded together to enact laws to defeat any increase in taxes (as in the u.s.) or cut social spending (europe).

so we now have polarized societies. with the citizens, rich and poor, expecting state to provide services that we would not even dream of in india. but no one wants to pay the cost of these services.

meanwhile, right from the smallest county in the u.s. upto obama, everyone is borrowing to the hilt, and at all stages, all the credit is supplied by china. the poor chinese peasants, work 16 hours a day, 7 days a week, and have kept the west in comfort these past years. atleast initially, there was real cash. now there are only promissory notes on some future payments.

i can think of only one way the west will get out of this. print more paper money to please everybody. except the chinese ofcourse!!

 

[RVR]

Excellent article.

If the state cannot manage itself, how can it protect its people.

If they don't pay policemen law and order will collapse.

If they don't pay teachers, education will collapse

If they don't pay Medical staff, health care will collapse.

It seems, Reserve Bank of India is more strict compared to Federal Reserve. Few years back they refused overdraft to Kerala and brought them under control.

Now all the state governments in India have downsized themselves to manage the situation. Government salary was eating into all the revenues earlier. Now most of the governments have started spending more on welfare measures and are reducing number of employees.

Only welfare measures to general public will win votes and not employee expenditures.

Most of the government departments in Tamilnadu are downsized to a large extent which is a good sign.

All the best

 

[kunjuppu]

Most of the government departments in Tamilnadu are downsized to a large extent which is a good sign.

All the best

rvr,

now a days with internet, and with increasing accessibility even to the smallest and poorest village (they can get coca cola or pepsi there no? and have cell phones or will have it soon?) many normal government interactions with the public can be done over the net.

right from paying taxes, getting passport, driver licence renewal and all such stuff can be done impersonally from the convenience of one's home. i know that mgr was among the most populist of all CMs in that he freely distributed government money to the poor.

it appears, even though MK doles out TVs, these are inherently educational tools and also have been proved an effective family planning tool and a family bonding one at that too in india. the new health insurance scheme is another in the right direction. but one has to watch the expenses carefully, as these can get out of hand, as it has in the west.

india, fortunately is in the phase of construction and growth. so there is enough money coming into the coffer to afford all such stuff. once the society matures, which for us, thankfully is atleast 100 years away, the expectations of the population increases, wages and costs are high, and salaries are steady or jobs are lost.

which is how the west came up with the quandry they are now. in the fast growing last half of 20th century the government could afford all the expenses. one of the disastrous effect of no population growth, is that there are no youngsters to take the jobs of the oldsters, and as we get old, our maintenance costs increases in terms of health care, and there is no one to pay for it.

which is why there is large immigration to the west. they do not quite like the coloreds in europe. but they need them. for the coloreds in europe there is no upward mobility. three generations of turks are still scavengers and road cleaners. it is better in u.k. where the children of asian corner shop owners are now accountants or rich entrepreneurs. likewise in the usa.

even here in this forum, we have experienced the lack of girls for our boys. population control may be a good thing for the society but disastrous for individuals. i think.

 

[kunjuppu]

http://www.nytimes.com/2010/07/02/business/global/02whiskey.html?src=me&ref=business

it may be news to the public here, that many western private companies offer life long pensions, just like our sarkars.

nowadays, with tough times, many of these companies' independently managed pension funds are running deficits, ie at some point, there will be no money to pay the pensions.

so the above is an interesting example of how one company is plugging this deficit.

does this mean, that pensioner will get a dram of scotch every day in lieu of the government currency? maybe not a bad idea after all eh eh!!!

 

[sangom]

Excellent article.
...
It seems, Reserve Bank of India is more strict compared to Federal Reserve. Few years back they refused overdraft to Kerala and brought them under control.

GOI/RBI are/were always strict in the matter of State Govt. ways and means advances. In India only GOI can borrow without limit from RBI and issue printed notes to the public on that basis.

Now all the state governments in India have downsized themselves to manage the situation. Government salary was eating into all the revenues earlier. Now most of the governments have started spending more on welfare measures and are reducing number of employees.

Much of these reforms have come because no one will lend to India without limit as the entire world does to US and thus it is the most indebted country in the world! IMF (US' spokesperson) screws India about its subsidies and so our Govt. goes on implementing all their dictates. But US does not practice what it preaches!! There is a saying in Malayalam (sarcastic, of course) "guruvinu enthum aakaam", i.e., the guru is not bound by any law.

 

[Nara]

Folks,

It is a joint effort of Republicans and Democrats, Reagan started cutting taxes and increasing military spending that resulted in record budget deficits only to be topped by George W, who cut the taxes even more and took the country to war on a pack of lies resulting in multifarious losses -- lives, treasure, image -- least among them and yet enormously significant being repeated supplemental "emergency" spending of 100s of billions of $ year after year adding up ever more piling up debt.

And, it was Clinton, with his Republican co-conspirator Senator Gramm, who removed all meaningful and long standing regulations. With no oversight worth the paper it is written on, the same banks (or their descendants) that wrecked the US and world economy in the early 1930s -- which prompted the Glass Steigel Act regulating banks that was repealed by Clinton -- wrecked the US and world economy once again. Yet, the bank's hold on the US government is so great that Illinois Sentaor Dick Durbin, Chairman of Senate Subcommittee on Financial Services and Assistant Majority Leader commented from the floor of the senate:

"And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place,"
​

The fact the Durbin is spot on is made clear by the Massachusetts senator Brown successfully demanding that the provision that the $17 billion cost of implementing the bank reforms being considered that was to be paid by the banks is removed from the bill so that the cost is picked up by the tax payers.

The big banks wreck the economy and get bailed out by their politician friends from both parties. The big bank executives get to earn mega bonuses, but the ordinary working stiff has to pay. Slash the budget deficits, cut all these social programs, lest the net worth of the rich and powerful may decline.

To say that the state governments mismanaged their finances to the point of insolvency is a complete misunderstanding of the facts. The root cause for the economic troubles lies at the feet of big banks and the regulators -- even the veritable Ayn Randian past Fed Chairman Greenspan had to admit it. The culprits are the big banks and their co-conspirators in the federal government, not the state governments. The state governments by law cannot run budget deficits.

Cheers!

 

[kunjuppu]

......uch of these reforms have come because no one will lend to India without limit as the entire world does to US and thus it is the most indebted country in the world! IMF (US' spokesperson) screws India about its subsidies and so our Govt. goes on implementing all their dictates. But US does not practice what it preaches!! There is a saying in Malayalam (sarcastic, of course) "guruvinu enthum aakaam", i.e., the guru is not bound by any law.

sangom,

is this not blessing in disguise? i can just imagine bengal or bihar or tamil nadu, just before elections, beggaring the treasury with gifts to the electorate.

thank goodness we have some atleast externally imposed discipline.

re the usa, do we really care for their senseless spending? it is not an indian problem.

 

[sangom]

sangom,

is this not blessing in disguise? i can just imagine bengal or bihar or tamil nadu, just before elections, beggaring the treasury with gifts to the electorate.

thank goodness we have some atleast externally imposed discipline.

re the usa, do we really care for their senseless spending? it is not an indian problem.

Kunjuppu,

I am not an economist, but it seems to me that US is like a bank in which all (most) other countries have put their money. If that bank goes broke, all countries will sink with it. So, as the worst profligate nation US gets its authority to call the shots and tell others that they should save and not spend. That is the irony!!

 

[RVR]

According to Nobel Laurette Paul Krugman, the worst in the global economy is yet come.

He says Governments should spend more on long term development projects like infrastructure etc. His recommendation is improve capital expenditure and reduce revenue deficit.

But none of the Governments including USA are willing to hear him and hence depression seems to be inevitable.

I think individually we should avoid borrowing now and falling to debt trap.

All the best