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Arnold and Ed – Good Plan/Bad Plan
California’s Governor (R) Arnold Schwarzenegger and Pennsylvania’s
Governor Edward Rendell (D) were on TV on Sunday. These two were having
a bi-coastal love fest. They have connected with another big shot, Mike
Bloomberg, in an effort to steer the country toward a much larger
program of infrastructure investment.
This is an old story. You don’t have to look too far to see that
America is in need of some new ‘stuff’. They made the case that other
countries are investing more than we are and as a result we are falling
behind. Arnold made a good point when he said that the US was spending
5% of GPD on infrastructure in the 60’s and that paid off for decades.
The current infrastructure investment rate is only 2.5%. The Cali
Governor made it clear, the nation should revert back to that 5% level.
It would create jobs today and the investments would pay of in the
future with more jobs. Ed R. was almost slavering about all the steel
his state could produce under those conditions.
This sounds good. But it is a dead end. A 2-1/2% increase in
infrastructure spending translates to $350b a year, for at least the
next five. With interest that comes to $2 trillion. Call it an extra
$30 billion a month of funding requirements. That would of course be on
top of the existing deficit. What is already on the table comes to
about $120b a month. Forever. These two governors want us to go into
hock for an addition 25% over our existing crazy monthly nut.
The Terminator gave an example of his thinking. He is planning a new
$11b Bond to cover the cost of a major irrigation project. There are
clear benefits to the proposal. But another $11 of debt is required.
The solution to Cali’s problem is obvious. Borrow, spend and worry about
paying it back later. At one point the bond market will just say “no”.
Ed. R. made his thoughts on deficit financing clear. His message was,
if we don’t borrow and invest “We will become a second rate power”. The
T added: If we don’t rebuild our infrastructure, “We
will fall like Rome”.
QE interest rate management is over. We will be moving to more
normalized rates over the next few years. If one takes the Fed at it’s
word they will be unwinding their emergency measures. They are not
going to be a buyer of incremental debt. The macro economic conditions
are not producing the big current account imbalances that led to the
foreign demand for our debt. The recent increases in holdings by the
UK, Japan and Hong Kong are not sustainable. A historically big buyer,
the SS Trust Fund bought half as much as they did in 2009 than in 2007.
In three or four years they will begin selling their big holdings. As
for those savers in the US, well they might pick up some of the slack.
But not at the interest rates being offered today.
At the moment the US is benefiting from a global capital move to what
is perceived to be dry land. That trend may well continue for some
time. But at some point the pendulum will swing the other way and the
capital will leave our relative safety. (Someone please show me who
(major category-$100b per annum) is going to absorb the coming $5-8
trillion of supply?)
Ed and Arnold probably have it right. If we don’t borrow and spend we
will become a second rate power. The problem that I have is that if we
spend as much as is being suggested we will most certainly fall like
Rome.
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The money for this allready exists. The highway trust fund has been collecting it since the 50's. All that is necessary is to recall the 'loans' for non highway, non maintenabce items. If these are bad debts then the revenue stream from bike paths, mass transit, ect. can be tapped and diverted back. The 50s' generation were not dummies. They allowed for maintenance funds. Water and sewage fees were set aside for maintenance and expansion. Tolls paid back the bonds and set aside a fund for upkeep. Just read the original paperwork. Sound accounting principals were used. The problem mostly started in the late 70s' to early 80s'. This is when we started using the word investment for non financial goals. Now that it is time to start using the revenue streams from our investments in social goals the streams seem not to exist. And for some reason the 20 somethings don't seem to appreciate how thouroughly they and their lifesyles have been saved.
Let's be serious here, they are both politicians. They are both personally rich enough to not have to care about the future of this country. Thus, they can spend and not have to pay for it. Might as well get the populace (who's infatuation with American Idol is starting to wane) off their backs before they catch on. Spend! Spend! Spend!
"If one takes the Fed at it’s word they will be unwinding their emergency measures. They are not going to be a buyer of incremental debt. "
You could be correct; I hope you're correct. But the bond markets and the equity markets are saying just the opposite. They say that Bernanke will continue to monetize. After watching Zimbabwe Ben in action, I regretfully have to agree with the markets. Bernanke, and his eventual successor, won't tighten, can't tighten, will never be allowed to significantly tighten monetary policy. We're caught in the gravity well of the black hole.
No stimulus plan is going to help California now... they have a matter of weeks. When it becomes obvious behind the piles of money Washington has insulated itself with that no one outside the state will countenance any national aid, I predict reverse-okie diaspora.
Actually this wouldn't be a bad idea IF all infrastructure
conception, design and construction were made and performed with strictly local labor and materials.
NO IMPORTS but for what cannot be provided statewide.
There could even a be special currency issued to cover this decades long undertaking. Fully negotiable but ONLY in the United States.
The work needs to be done and begun immediately the way this country is falling apart.
The boon to our national economy would be far reaching.
All green lights as far as I can see.
You have no idea what you're talking about. Do you know how long the supply chain is? Do you realize that whatever is 'made in the USA' is dependent, not only materially, but in price, on things flowing into the country? Even American Apple Pie uses sugar that comes in from some third world country. Get a clue. We don't have enough steel, cotton, coffee and about a billion other things. Now take that down the the state level, you jack ass and you can't even find enough toilet paper to wipe your own ass because it's too expensive to make with only locally grown trees.
We can't grow our own sugar? We can't produce what we need in steel, cotton? The largest agricultura country in the world?
Where the fuck do you come from? A rain barrel?
Research before you talk. We can't grow our own sugar actually, well not much of it. Research it, there are rules about who can grow sugar and how much just as there is stiff import tariffs and quotas on sugar. The local sugar producers and corn lobbies have gotten this tied down real well.
Rendell is a tool. His idea to reinvigorate the finances of the Commonwealth was to zealously promote legalized gambling. Genius. Now, go away, Ed.
Bad idea, eh? Didn't the Roman Senators prostitute their wives to raise money for the state? Anyone here interested in doing Mrs. McCain or Mary Landrieu?
That's just one of many goodies. I expect him to rally behind the 'lets all sell beer on sundays at convenience stores to increase excise revenues.' Not that buying beer on sundays is bad, nor will I mind terribly being able to go to Sheetz and pick up a six pack; it's just that this is silly compared to the REAL problems that are out there, like spending too much money on free shit for people who never pay into it.
The Romans are already laughing to tears at the US!
How about putting a couple teenagers in the octagon with Jamie "pussy" Dimon and let him explain how he stole the future prosperity from an entire generation!
Until those thugs are sleeping with the fishes there is to be zero recovery.
That you can bet your ass on!
The "SS Trust Fund" :)
HEIL TERMINATOR!
In every opinion piece or report relating to the financial problems of California (or Arizona, or fill in the name of your favorite insolvent state) I search in vain for any suggestion to reduce the U.S. prison population. Releasing nonviolent drug offenders, or reducing the insanely draconian sentences for other nonviolent criminals, would have only one net cost: Loss of jobs for corrections officers. On the other hand, each released prisoner would save $20,000 to $30,000 per year in public money, and would acquire the opportunity to look for productive work (and pay taxes). Males with dependent families would regain responsibility for supporting them, relieving the state of that burden. Yet our elected representatives are so utterly spineless, so totally mesmerized by the fear of not being re-elected because they could be perceived as "soft on crime," they say nothing about our prison population being the largest in the world, not only in absolute numbers, but as a percentage of the general population.
Similarly, we could eliminate police doing drug busts relating to marijuana, while legalizing it and reaping tax revenue. We would need fewer public defenders, probation officers, and judges wasting their time on the unwinnable and utterly pointless war on drugs.
Yet when states talk about budget cuts, they usually start with education and welfare benefits.
I agree. And while were at it, lets do away with speeding tickets for anyone that has less than 3 accidents. Why punish safe drivers that like to drive fast. Think of all the policemen, judges and dmv clerks we wouldnt have to pay. Drunk drivers?
Make them pay triple tax for booze. Dont arrest them. They are a potential revenue stream. Again, think of all that government infrastructure we could disgorge. All of those dui programs. Well meaning social workers. You get the drift.
The socialist welfare state has sucked the lifeblood out of every other budgetary item, including infrastructure.
Arnie needs to realize that instead of possible worthless paper he should sell the Golden Gate bridge and other major assets. Why buy paper when you should be buying something of physical value. As such, the new owner will need to pay for upkeep.
Come to think of it, better to buy gold, less upkeep costs, no ever-changing government 'imperial entanglements' and risk the US Gov will find a new way to regulate you into the poorhouse. As for buying Calif debt, Michael McDonald sings a great song titled "What A Fool Believes".
www.youtube.com/watch?v=pk9mmto2Cdw
arnold's time would have been better spent figuring out how to fix his state's corrupt and dilapidated budget rather than blabbering his ignorant stupidass comments when his state is sinking into a morass of oblivion....he is the last incompetent boob i would want giving investment advice as he presides over a complete fiscal implosion in his debt ridden disintegrating state....rendell will be in competition for the state with the worst finances although i think superloser california will easily out flank him.....
even if there were any benefits to infrastructure projects there was not even the flimsiest shred of evidence to support it.....where was the roi analysis? irr anyone? how about stupid post it note from his mother saying it all good baby? nothing but baldass wild eyed assertions....
on the other hand, beyond certain necessities of roads and the like, the market place should direct investment - not the politburo....
nope this was the howdy doody hour where spending your way to prosperity in a negative marginal productivity of debt world is the only way to fly....
I would rather listen to Rick Santelli. Who cares if Ahnold or Ed don't define us as first rate? Why would they know what is first rate? At least Rick has his head on straight.