States declaring bankruptcy

[Cortez88]

The difference between state federal tax payments and state federal disbursements is a red herring. It means nearly nothing in terms of state structural debt, income, and cash flow.

I understand that. I was explaining that this was a political exercise and not something serious.

 

[iuwclurker]

McConnell favors letting states file bankruptcy over a bailout. States are currently forbidden. So, what are the plusses and minusses to having states go under?

McConnell admittedly never does anything for policy reasons, so the first question is, what’s his political agenda?

 

[Digressions]

It's not just $500b. The total federal outlay for the virus is approaching $3 trillion. The question you and @Digressions need to ask is if there is an upper limit, and if so where?

The governors asking for bailout money is entirely predictable. States are required to balance their budgets, the feds are not. That means the states must set priorities and the feds not so much. I don't think the states asking for these funds is so much about need. Instead it is more about avoiding hard choices about where to spend money.

All levels of government are taking an enormous financial hit though more expenses and less revenue. State and local government needs to step up to the plate and make the important choices. I know from first hand knowledge that there is substantial dead weight in government. Threats to cut front line first responders is BS so long a state and local government keep intact other less important bureaucracies. For example, is it more important for a city to have a fully staffed planning planning department or a police department? Even within law enforcement there is dead weight in the highly-compensated administrative staff. All levels of government have overlapping and duplicative services, not because they are needed, but because they are seen as attracting voters. Examples are all over the place.

Thirty years ago the Grace Commission issued its report on federal government waste and mismanagement. A big part of that was duplicative services across numerous federal agencies. State and local government are the same. Nothing was done to put into effect the Grace Commission recommendations. Instead the deficiencies have gotten much worse in federal, state, and local government.

I'm as much in favor of cops, firefighters and teachers as the next guy. But I am also in favor of business and the economy--which we need to pay the freight of cops, firefighters, and teachers. As I am writing this, I know there are millions of people seeing their savings, retirement funds, college funds, and home equities melt away day by day. I was a smal business person and that could have been me 30 years ago. (It pisses me off no end to see people like Pelosi talking about coping by eating ice cream--she has no clue.) Beyond continuing with essential services, the very first priority of the federal government needs to be to support and preserve the economy which mostly centers around small business and private sector jobs. Without that, nothing else will matter. If, after state and local government has made the choices and done all it could to keep needed front line workers on the job, then I'd be willing to re-look at the issue.

For now, all the governors want is to have the feds bail them out to preserve their status quo. This pandemic could and should cause all levels of government to focus on essential services and cut the duplication and non-essential services.

End of rant.

WRT an upper limit:

A precise number isn't attainable because the answer lies in the hearts and minds of each creditor. And what fears might they have? Default? Currency devaluation?

The ability to print money by definition eliminates the default, right? And so the main concern would be currency devaluation. Here, there are some interesting dynamics unfolding. First, currency valuation is a totally relative matter. This is a global crisis and the world is interdependent. A dollar- economically speaking- doesn't know or care, if it was "earned" or "gifted". We are simply trying to replace earned dollars with gifted dollars. Our almost unique ability to do this, should make our currency more attractive, right?

The other part of the value of currency is how much is each dollar worth, or what is its purchasing power. This is usually measured by inflation, which is defined by too many dollars chasing too few goods. What is often overlooked is that there are two sides to that equation. The first part: too many dollars- well, we addressed that. We are simply replacing earned dollars with gifted dollars.

The second- and most overlooked part- is too few goods. This to me is the most interesting dynamic of our situation. First, Trump doesn't receive enough credit for understanding and implementing policies that lead to cheap food and fuel. Why a farmer would ever support this man is mindboggling to me, but I digress. Ironically, at the outset of this fiasco, we are blessed with an overabundance of stuff. Because of market manipulating practices (not all are Trump's, and enough about him) such as ethanol, MFP, OPEC+/Russia oil confrontation, we have a gluttony of commodities. This fact, coupled with the Fed's ability to sop up excessive liquidity, [globalization, and income disparity (as stated by the Heritage Foundation economist I quoted recently)], means the likelyhood of inflation is relatively low.

There are a couple of threats to our commodity supply that shouldn't be overlooked. One is our ability for middlemen to bring our commodities to the marketplace. Packers and refineries are having trouble maintaining supply for different reasons. They are important.

The second is the amount of speculation allowed within our markets. Speculators play an important role by providing liquidity for buyers and sellers, but the amount of speculation allowed is way too much. No question about it. This allows swings that go way beyond discovery, and is a form of manipulation that has the ability to distort markets. The only reason this is allowed is because the market owners have lobbied to have spec limits eliminated because they get paid per trade, and if anyone says otherwise they're blowing smoke up your ass.

The demand destruction has been real, but it is important that we have ample supplies when we reach whatever type of normalcy is on the other side of this. Sorry for the lengthy post, but I think we have a lot of room to expand the Fed's balance sheet and wanted to explain why I feel that way.

 

[CO. Hoosier]

WRT an upper limit:

A precise number isn't attainable because the answer lies in the hearts and minds of each creditor. And what fears might they have? Default? Currency devaluation?

The ability to print money by definition eliminates the default, right? And so the main concern would be currency devaluation. Here, there are some interesting dynamics unfolding. First, currency valuation is a totally relative matter. This is a global crisis and the world is interdependent. A dollar- economically speaking- doesn't know or care, if it was "earned" or "gifted". We are simply trying to replace earned dollars with gifted dollars. Our almost unique ability to do this, should make our currency more attractive, right?

The other part of the value of currency is how much is each dollar worth, or what is its purchasing power. This is usually measured by inflation, which is defined by too many dollars chasing too few goods. What is often overlooked is that there are two sides to that equation. The first part: too many dollars- well, we addressed that. We are simply replacing earned dollars with gifted dollars.

The second- and most overlooked part- is too few goods. This to me is the most interesting dynamic of our situation. First, Trump doesn't receive enough credit for understanding and implementing policies that lead to cheap food and fuel. Why a farmer would ever support this man is mindboggling to me, but I digress. Ironically, at the outset of this fiasco, we are blessed with an overabundance of stuff. Because of market manipulating practices (not all are Trump's, and enough about him) such as ethanol, MFP, OPEC+/Russia oil confrontation, we have a gluttony of commodities. This fact, coupled with the Fed's ability to sop up excessive liquidity, [globalization, and income disparity (as stated by the Heritage Foundation economist I quoted recently)], means the likelyhood of inflation is relatively low.

There are a couple of threats to our commodity supply that shouldn't be overlooked. One is our ability for middlemen to bring our commodities to the marketplace. Packers and refineries are having trouble maintaining supply for different reasons. They are important.

The second is the amount of speculation allowed within our markets. Speculators play an important role by providing liquidity for buyers and sellers, but the amount of speculation allowed is way too much. No question about it. This allows swings that go way beyond discovery, and is a form of manipulation that has the ability to distort markets. The only reason this is allowed is because the market owners have lobbied to have spec limits eliminated because they get paid per trade, and if anyone says otherwise they're blowing smoke up your ass.

The demand destruction has been real, but it is important that we have ample supplies when we reach whatever type of normalcy is on the other side of this. Sorry for the lengthy post, but I think we have a lot of room to expand the Fed's balance sheet and wanted to explain why I feel that way.

The value of the dollar is an interesting point. In my simple terms, the more commodities a dollar would buy means the value increased, right? If we got to the point where we need 100 of those dollars to buy a gallon of gasoline, that wouldn’t be good. Wouldn’t producing trillions more of those dollars over a short period of time push us toward $100 for a gallon of gas? I don’t know all the causal connections here, that’s why I’m asking.

The other part of my point is questioning the wisdom of using the federal treasury to bail out state and local government for any amount—especially here were practically all states and all local governments can make a case for a bailout. Some guy opined that a state bankruptcy will end federalism. I think just the opposite. It will allow states to do their own laundry and strengthen federalism. Most think of bankruptcy in terms of defaults on debt and liquidation of assets. That’s not how this would would work. It would allow a reorganization of debt and other future obligations and give state and local government some breathing room while we return to normalcy and revenues pick up. It’s a shame that this is called “bankruptcy”.

 

[Digressions]

McConnell favors letting states file bankruptcy over a bailout. States are currently forbidden. So, what are the plusses and minusses to having states go under?

This is an interesting issue because it combines the negatives from the past two distinct era's of American politics. The one where labor was the overreaching force. Where if a union leader wasn't leading a strike for another quarter/hour, he wasn't doing his job. That era led to governments and municipalities having to overpay/overpromise to compete for workers.Then at the federal level, our populace switched gears and voted for a low tax, low wage(even if unintentionally) economy.

How much responsibility falls to each? Apparently, that's the $3T question. It won't surprise you to find out, I think the Federal government bears some responsibility and should help fill the gap.

But wrt, the state's responsibility, how long after the labor market changed, did it take states to adjust? For how long did they overpay/promise the market?

What responsibility do the workers who accepted these positions have? IANAL, but I remember taking a tort law class that discussed the reasonable person test. Similarly, was it reasonable for workers to assume that local governments and municipalities would be able to fulfill those overpromises?

Which leads us to taxpayers. Don't current taxpayers have a responsibility to help pay for the difference, whether it be at the local or federal level? They are the ones that voted for the politicians that overpaid and undertaxed.

It seems like there is plenty of blame to go around and all parties should be responsible to cover some of the shortfall. I do agree with your political assessment of McConnell, and he shouldn't be allowed to shirk his share of the responsibility.

 

[Digressions]

The value of the dollar is an interesting point. In my simple terms, the more commodities a dollar would buy means the value increased, right? If we got to the point where we need 100 of those dollars to buy a gallon of gasoline, that wouldn’t be good. Wouldn’t producing trillions more of those dollars over a short period of time push us toward $100 for a gallon of gas? I don’t know all the causal connections here, that’s why I’m asking.

The other part of my point is questioning the wisdom of using the federal treasury to bail out state and local government for any amount—especially here were practically all states and all local governments can make a case for a bailout. Some guy opined that a state bankruptcy will end federalism. I think just the opposite. It will allow states to do their own laundry and strengthen federalism. Most think of bankruptcy in terms of defaults on debt and liquidation of assets. That’s not how this would would work. It would allow a reorganization of debt and other future obligations and give state and local government some breathing room while we return to normalcy and revenues pick up. It’s a shame that this is called “bankruptcy”.

No, because we are not earning trillions of dollars. We are replacing earned dollars with new/printed/gifted dollars. Plus, there is no demand for gas. Plus, there is an ample supply of gas. And even if we got to the point where those dynamics changed, we would have the ability to raise interest rates and take that excessive money out of the economy.

We have had historically low interest rates for a couple decades now. It would be miraculous for us to have inflation given our current circumstances and I would argue that inflation would be a welcomed sight, assuming that inflation was caused by increased money supply and demand vs a decreased supply of goods.


Wrt states filing bankruptcy, see my previous reply to Marvin. Earlier in this thread, you said, "Reorganizations are a way to spread losses." Spread losses between which entities? I would suggest taxes are a way to spread losses too. The shortfall shouldn't be the burden of any one entity.

 

[Marvin the Martian]

This is an interesting issue because it combines the negatives from the past two distinct era's of American politics. The one where labor was the overreaching force. Where if a union leader wasn't leading a strike for another quarter/hour, he wasn't doing his job. That era led to governments and municipalities having to overpay/overpromise to compete for workers.Then at the federal level, our populace switched gears and voted for a low tax, low wage(even if unintentionally) economy.

How much responsibility falls to each? Apparently, that's the $3T question. It won't surprise you to find out, I think the Federal government bears some responsibility and should help fill the gap.

But wrt, the state's responsibility, how long after the labor market changed, did it take states to adjust? For how long did they overpay/promise the market?

What responsibility do the workers who accepted these positions have? IANAL, but I remember taking a tort law class that discussed the reasonable person test. Similarly, was it reasonable for workers to assume that local governments and municipalities would be able to fulfill those overpromises?

Which leads us to taxpayers. Don't current taxpayers have a responsibility to help pay for the difference, whether it be at the local or federal level? They are the ones that voted for the politicians that overpaid and undertaxed.

It seems like there is plenty of blame to go around and all parties should be responsible to cover some of the shortfall. I do agree with your political assessment of McConnell, and he shouldn't be allowed to shirk his share of the responsibility.

Part of this issue, I am very close to. Quick story, I was young when a truck crossed the center line and hit our car. It killed my mom, critically injured my dad who would never work again. The truck driver had no insurance, and since he had not yet picked up his trailer the trucking company's insurance only finally agreed to pay our direct expenses.

So my dad was forced into early retirement. But he had worked for Penn Central and the retirement was very good. It was needed because my grandmother and grandfather both lived with us. My grandmother never worked, my grandfather worked odd jobs after his time as a mule remaster ended.

Of course Penn Central went bankrupt and their pension plan had been raided. So we had almost nothing. Congress did allow Penn Central employees to draw social security. So the 4 of us lived on social security and two very small military disabilities (grandfather had lost a finger in WW1 and dad damaged a knee in WW2).

So I know that there are two truths, 1) defined pensions need reworked 2) it needs done in a way that does not totally screw over people. I cannot seem to convince some of our conservative friends that #2 is true. I am very skeptical #2 would even rate as a minor concern to Mitch or a court. I base that off of a life experience I lived first hand.

 

[Digressions]

Part of this issue, I am very close to. Quick story, I was young when a truck crossed the center line and hit our car. It killed my mom, critically injured my dad who would never work again. The truck driver had no insurance, and since he had not yet picked up his trailer the trucking company's insurance only finally agreed to pay our direct expenses.

So my dad was forced into early retirement. But he had worked for Penn Central and the retirement was very good. It was needed because my grandmother and grandfather both lived with us. My grandmother never worked, my grandfather worked odd jobs after his time as a mule remaster ended.

Of course Penn Central went bankrupt and their pension plan had been raided. So we had almost nothing. Congress did allow Penn Central employees to draw social security. So the 4 of us lived on social security and two very small military disabilities (grandfather had lost a finger in WW1 and dad damaged a knee in WW2).

So I know that there are two truths, 1) defined pensions need reworked 2) it needs done in a way that does not totally screw over people. I cannot seem to convince some of our conservative friends that #2 is true. I am very skeptical #2 would even rate as a minor concern to Mitch or a court. I base that off of a life experience I lived first hand.

I'm sorry for your loss and thank you for sharing. I definitely understand why this issue is near and dear to your heart.

 

[CO. Hoosier]

Part of this issue, I am very close to. Quick story, I was young when a truck crossed the center line and hit our car. It killed my mom, critically injured my dad who would never work again. The truck driver had no insurance, and since he had not yet picked up his trailer the trucking company's insurance only finally agreed to pay our direct expenses.

So my dad was forced into early retirement. But he had worked for Penn Central and the retirement was very good. It was needed because my grandmother and grandfather both lived with us. My grandmother never worked, my grandfather worked odd jobs after his time as a mule remaster ended.

Of course Penn Central went bankrupt and their pension plan had been raided. So we had almost nothing. Congress did allow Penn Central employees to draw social security. So the 4 of us lived on social security and two very small military disabilities (grandfather had lost a finger in WW1 and dad damaged a knee in WW2).

So I know that there are two truths, 1) defined pensions need reworked 2) it needs done in a way that does not totally screw over people. I cannot seem to convince some of our conservative friends that #2 is true. I am very skeptical #2 would even rate as a minor concern to Mitch or a court. I base that off of a life experience I lived first hand.

The more I read you posts, the more I understand why you post the way you do in response to me. Your views of your “conservative friends” is wrong here and is mostly wrong in general. Sorry for that. Really.

FWIW, private and public defined pension funds are so structurally different that even calling them by the same name is misleading. The Pension Guarantee Corporation was established as part of ERISA in the 70’s to address the issue you described. However government pensions are a different animal from the old company-run benefits which were not funded in an effort to keep companies afloat. Mitch has nothing to do with how a bankruptcy would affect a public pension, if at all. I think your criticism of the courts is also totally misplaced. Illinois has been in a terrible fix for years because of how the courts enforced its pension law. Illinois will now be in crisis. I think bankruptcy reorganization is entirely appropriate there.

 

[meridian]

He wants them to default on their pension liabilities. You know, the ones for teachers and police and firefighters. Takers, in other words.

Thank makes sense. I am glad that I don't have any such pension, but my wife does, I think.

 

[Marvin the Martian]

The more I read you posts, the more I understand why you post the way you do in response to me. Your views of your “conservative friends” is wrong here and is mostly wrong in general. Sorry for that. Really.

FWIW, private and public defined pension funds are so structurally different that even calling them by the same name is misleading. The Pension Guarantee Corporation was established as part of ERISA in the 70’s to address the issue you described. However government pensions are a different animal from the old company-run benefits which were not funded in an effort to keep companies afloat. Mitch has nothing to do with how a bankruptcy would affect a public pension, if at all. I think your criticism of the courts is also totally misplaced. Illinois has been in a terrible fix for years because of how the courts enforced its pension law. Illinois will now be in crisis. I think bankruptcy reorganization is entirely appropriate there.

Are you saying bankruptcy is a state will have no impact on retirees receiving a pension? When a state files for bankruptcy, where in line are pension funds.

My beef with you is you are too damn smart to fall for the propaganda of the populists and militia types that back Trump in very large numbers. You whisper quietly that his dog whistles to them are misguided but then scream loudly that it is impossible for Trump to ever say anything that matters one iota.

I suspect you have never really heard the GOP vitriol against organized labor. Your ears have heard, but your mind blocks it out from getting past the ears. Mitch knows the more he cripples unions, the better it is for the GOP. Mitch only sees the world through what helps the Republican Party. GOP = USA. Maybe even GOP>USA. Either way, labor is an enemy of the state to him and others. I am not saying you necessarily agree with that, but you are more than willing to turn a blind eye.

As a whole, members of the GOP have screamed for years that they have morals and principles. And individually those people might. Collectively they screw those principles to elect and maintain a populist. You and I both know populism is not conservatism. Just as I will state Bernie's populism is not liberalism. For some reason you are terrified of angering your populist friends. I do not know why, my hope is to help you find your courage. Even when I backed Bernie over Clinton in 16, I was free to admit Bernie Bros were idiots. Join the club. You do not have to kneel to the populists, you can stand up.

You also might check with them what they think should happen to public employees on defined pensions. Ask Ed (Ladoga). The answer I read is not concern for their well-being. Rather much more of a "they will get what they deserve".

 

[CO. Hoosier]

Are you saying bankruptcy is a state will have no impact on retirees receiving a pension?

That's exactly what I am saying. In the states that I know of, and I believe in order to qualify as a Social Security alternative, state defined benefit plans are separate authorities with segregated trust funds. That's not to say that all government plans are actuarially sound, but the health of the pension plan is a separate issue from the state treasury. In those states where the legislature appropriates general funds to support the pension plans, you could have a point, but it would be minor. Mostly the funds are built with employee payroll deductions and payroll expenses each unit of government pays. An appropriate analogy would be a government workers compensation risk pool. A government bankruptcy would not involve the pooled funds.

My beef with you is you are too damn smart to fall for the propaganda of the populists and militia types that back Trump in very large numbers.

Because I might agree with Trump or other populists or militia types on certain issues doesn't mean I have fallen for their propaganda. It has become obvious that you treat my positions as originating with these types which makes meaningful discussions almost impossible.

Your ears have heard, but your mind blocks it out from getting past the ears.

Guilty as charged. We all filter what our minds tells us is bullshit. Every human being has this bias. It's unavoidable. Respectful argument and socratic exchanges are the antidote.

As a whole, members of the GOP have screamed for years that they have morals and principles. And individually those people might. Collectively they screw those principles to elect and maintain a populist. You and I both know populism is not conservatism.

Calling an idea populism doesn't mean it's a bad idea.

For some reason you are terrified of angering your populist friends.

You lost me here. I couldn't list my populist friends if you paid me to. FWIW, I don't pick friendships based on politics. That's another way I am a contrarian. And yeah, I think I have paid a price for that here.

my hope is to help you find your courage.

Hm. First thanks for your efforts. Secondly, if you think that I am intimidated by this board, or that I shape my posts only to make nice, you are mistaken. You might recall I have been pretty blunt about gun control, tort reform, abortion, religious right, and school vouchers all contrary to trendy conservatism.

You also might check with them what they think should happen to public employees on defined pensions. Ask Ed (Ladoga). The answer I read is not concern for their well-being. Rather much more of a "they will get what they deserve".

My stoker receives a defined benefit teacher's pension. So I don't need that lecture. As I said above, I don't see a meaningful impact of a general government bankruptcy reorganization on a state pension, although it could in terms of a state backfill. I don't see how a bankruptcy reorganization can affect vested government benefits in any event. I firmly believe that state elected officials need to do the job of setting spending priorities. If a choice needs to be made between funding Medicaid, or more public safety employees, and paying for more COLA increases, or allowing future full early retirements for a mild disabilities in state pensions, the officials need to make that choice. A federal bailout does not solve the structural problems this pandemic exposes. It would perpetuate those problems.

 

[Marvin the Martian]

That's exactly what I am saying. In the states that I know of, and I believe in order to qualify as a Social Security alternative, state defined benefit plans are separate authorities with segregated trust funds. That's not to say that all government plans are actuarially sound, but the health of the pension plan is a separate issue from the state treasury. In those states where the legislature appropriates general funds to support the pension plans, you could have a point, but it would be minor. Mostly the funds are built with employee payroll deductions and payroll expenses each unit of government pays. An appropriate analogy would be a government workers compensation risk pool. A government bankruptcy would not involve the pooled funds.



Because I might agree with Trump or other populists or militia types on certain issues doesn't mean I have fallen for their propaganda. It has become obvious that you treat my positions as originating with these types which makes meaningful discussions almost impossible.



Guilty as charged. We all filter what our minds tells us is bullshit. Every human being has this bias. It's unavoidable. Respectful argument and socratic exchanges are the antidote.



Calling an idea populism doesn't mean it's a bad idea.



You lost me here. I couldn't list my populist friends if you paid me to. FWIW, I don't pick friendships based on politics. That's another way I am a contrarian. And yeah, I think I have paid a price for that here.



Hm. First thanks for your efforts. Secondly, if you think that I am intimidated by this board, or that I shape my posts only to make nice, you are mistaken. You might recall I have been pretty blunt about gun control, tort reform, abortion, religious right, and school vouchers all contrary to trendy conservatism.



My stoker receives a defined benefit teacher's pension. So I don't need that lecture. As I said above, I don't see a meaningful impact of a general government bankruptcy reorganization on a state pension, although it could in terms of a state backfill. I don't see how a bankruptcy reorganization can affect vested government benefits in any event. I firmly believe that state elected officials need to do the job of setting spending priorities. If a choice needs to be made between funding Medicaid, or more public safety employees, and paying for more COLA increases, or allowing future full early retirements for a mild disabilities in state pensions, the officials need to make that choice. A federal bailout does not solve the structural problems this pandemic exposes. It would perpetuate those problems.

A federal bankruptcy court will not, in any way, interfere with a state making payments to already severely underfunded pension plans? I am skeptical a federal court is going to say, "those obligations are entirely different and you may continue spending on them 100%". Why am I wrong?

I read Frum's article on it being the death of Federalism. His point is that this is a backdoor maneuver by McConnell to force his ideas on what is good governance on blue states circumventing "the will of the majority".

It is all for naught anyway, it at a minimum will require Congress to pass a law allowing it and it may take a constitutional amendment. The former ain't getting through the House, the latter could not be in time if it happens.

I know you are an avid biker. Are bike lanes anecessity? Are parks? Social services? I doubt Colorado has a budget item called "waste and fraud". Colorado has one of the most underfunded pension plans. Right now your state isprojecting a $3 billion shortfall. That is 10% of the total budget, and it is only going to get worse. How much will you vote to raise your taxes? What government services that you use and support are you willing to see the state end? When people think about these things, they always think of the state budget they use as necessities, state budgets others use as wasteful. What items you use are you ready to see eliminated?

 

[Rockfish1]

WRT an upper limit:

A precise number isn't attainable because the answer lies in the hearts and minds of each creditor. And what fears might they have? Default? Currency devaluation?

The ability to print money by definition eliminates the default, right? And so the main concern would be currency devaluation. Here, there are some interesting dynamics unfolding. First, currency valuation is a totally relative matter. This is a global crisis and the world is interdependent. A dollar- economically speaking- doesn't know or care, if it was "earned" or "gifted". We are simply trying to replace earned dollars with gifted dollars. Our almost unique ability to do this, should make our currency more attractive, right?

The other part of the value of currency is how much is each dollar worth, or what is its purchasing power. This is usually measured by inflation, which is defined by too many dollars chasing too few goods. What is often overlooked is that there are two sides to that equation. The first part: too many dollars- well, we addressed that. We are simply replacing earned dollars with gifted dollars.

The second- and most overlooked part- is too few goods. This to me is the most interesting dynamic of our situation. First, Trump doesn't receive enough credit for understanding and implementing policies that lead to cheap food and fuel. Why a farmer would ever support this man is mindboggling to me, but I digress. Ironically, at the outset of this fiasco, we are blessed with an overabundance of stuff. Because of market manipulating practices (not all are Trump's, and enough about him) such as ethanol, MFP, OPEC+/Russia oil confrontation, we have a gluttony of commodities. This fact, coupled with the Fed's ability to sop up excessive liquidity, [globalization, and income disparity (as stated by the Heritage Foundation economist I quoted recently)], means the likelyhood of inflation is relatively low.

There are a couple of threats to our commodity supply that shouldn't be overlooked. One is our ability for middlemen to bring our commodities to the marketplace. Packers and refineries are having trouble maintaining supply for different reasons. They are important.

The second is the amount of speculation allowed within our markets. Speculators play an important role by providing liquidity for buyers and sellers, but the amount of speculation allowed is way too much. No question about it. This allows swings that go way beyond discovery, and is a form of manipulation that has the ability to distort markets. The only reason this is allowed is because the market owners have lobbied to have spec limits eliminated because they get paid per trade, and if anyone says otherwise they're blowing smoke up your ass.

The demand destruction has been real, but it is important that we have ample supplies when we reach whatever type of normalcy is on the other side of this. Sorry for the lengthy post, but I think we have a lot of room to expand the Fed's balance sheet and wanted to explain why I feel that way.

That's a nice analysis, but I get to a similar place through a simpler path. The real interest rate on US Treasuries is negative all the way out to 20 years. Thus the bond market is literally paying the federal government to borrow money. This necessarily means that the market thinks there's a zero risk of inflation and no threat at all to the safety of US Treasuries.

At this moment in time, the federal government's ability to issue debt is essentially unlimited, because the demand for Treasuries is overwhelming. Anyone who thinks we're anywhere near the limit of our borrowing capacity needs to explain what they know that the bond market doesn't.

Again, this is a fairly simple analysis, and maybe there's something I'm missing. But if I'm missing it, so is the bond market.

 

[Rockfish1]

A federal bankruptcy court will not, in any way, interfere with a state making payments to already severely underfunded pension plans? I am skeptical a federal court is going to say, "those obligations are entirely different and you may continue spending on them 100%". Why am I wrong?

I read Frum's article on it being the death of Federalism. His point is that this is a backdoor maneuver by McConnell to force his ideas on what is good governance on blue states circumventing "the will of the majority".

It is all for naught anyway, it at a minimum will require Congress to pass a law allowing it and it may take a constitutional amendment. The former ain't getting through the House, the latter could not be in time if it happens.

I know you are an avid biker. Are bike lanes anecessity? Are parks? Social services? I doubt Colorado has a budget item called "waste and fraud". Colorado has one of the most underfunded pension plans. Right now your state isprojecting a $3 billion shortfall. That is 10% of the total budget, and it is only going to get worse. How much will you vote to raise your taxes? What government services that you use and support are you willing to see the state end? When people think about these things, they always think of the state budget they use as necessities, state budgets others use as wasteful. What items you use are you ready to see eliminated?

Mitch McConnell would fail basic macroeconomics.

When you have a huge aggregate demand shortfall, as we do now, government revenues inevitably plummet. But unlike the federal government, which has an essentially unlimited ability to borrow money, states are generally obliged to balance their budgets. As state governments' tax revenues fall, they must therefore cut back, and those spending cuts and layoffs make the downturn deeper, feeding a downward spiral.

Basic macroeconomics says that a federal government that can borrow at negative real interest rates should fund 100 percent of the shortfall that's body-slamming state governments. Anyone who says otherwise should explain why -- preferably in a peer-reviewed paper that explains how basic macro is all wrong.

 

[Marvin the Martian]

Mitch McConnell would fail basic macroeconomics.

When you have a huge aggregate demand shortfall, as we do now, government revenues inevitably plummet. But unlike the federal government, which has an essentially unlimited ability to borrow money, states are generally obliged to balance their budgets. As state governments' tax revenues fall, they must therefore cut back, and those spending cuts and layoffs make the downturn deeper, feeding a downward spiral.

Basic macroeconomics says that a federal government that can borrow at negative real interest rates should fund 100 percent of the shortfall that's body-slamming state governments. Anyone who says otherwise should explain why -- preferably in a peer-reviewed paper that explains how basic macro is all wrong.

New guy, you should stick around.

 

[hoosboot]

Mitch McConnell would fail basic macroeconomics.

When you have a huge aggregate demand shortfall, as we do now, government revenues inevitably plummet. But unlike the federal government, which has an essentially unlimited ability to borrow money, states are generally obliged to balance their budgets. As state governments' tax revenues fall, they must therefore cut back, and those spending cuts and layoffs make the downturn deeper, feeding a downward spiral.

Basic macroeconomics says that a federal government that can borrow at negative real interest rates should fund 100 percent of the shortfall that's body-slamming state governments. Anyone who says otherwise should explain why -- preferably in a peer-reviewed paper that explains how basic macro is all wrong.

That is a very solid analysis and a great answer if McConnell's major focus is on economic stability. Any takers that this is the case?

 

[UncleMark]

New guy, you should stick around.

He does appear to have some potential, doesn't he?

 

[Rockfish1]

That is a very solid analysis and a great answer if McConnell's major focus is on economic stability. Any takers that this is the case?

McConnell's statement that states should be allowed to go bankrupt is as stupid as Trump's suggestion that we should inject disinfectant to cure the virus. It's quackery.

 

[UncleMark]

McConnell's statement that states should be allowed to go bankrupt is as stupid as Trump's suggestion that we should inject disinfectant to cure the virus. It's quackery.

He offered bankruptcy up as an alternative to a "blue state bailout". It's politics. As is everything with McConnell. I've said it before -- Mitch McConnell is the most despicable US politician of my lifetime. No exceptions. Including Trump. And I'm old.

 

[Rockfish1]

Let me make a sharper point.

In 2009, Republicans opposed anything and everything that would pull us out of the Great Recession, because that would be good for Barack Obama and the Democrats. But like every Congressional Democrat, I favor massively more government action to save the economy now, even though that would help Trump politically in an historic election year. This is because we are not sociopaths.

 

[Marvin the Martian]

He offered bankruptcy up as an alternative to a "blue state bailout". It's politics. As is everything with McConnell. I've said it before -- Mitch McConnell is the most despicable US politician of my lifetime. No exceptions. Including Trump. And I'm old.

The "funny" part is that Kentucky has a massively underfunded pension, Florida's biggest driver is tourism which does not exist, and Texas' revenue is energy which is in a depression. The fact anyone thinks this will only be a blue state problem immediately lacks credibility.

 

[Marvin the Martian]

Looking at the numbers, the total budget of all state budgets was just over $2 trillion. Source https://www.kff.org/other/state-ind...0&sortModel={"colId":"Location","sort":"asc"}

So would $500 billion be enough, a quarter of the overall total? Maybe not, but it also does not seem crazy. All states still have some income still coming in, and the 7 have never shut down. Some states probably have no bailout need. Others might just need a little. And still more might need a lot.

 

[Rockfish1]

Looking at the numbers, the total budget of all state budgets was just over $2 trillion. Source https://www.kff.org/other/state-indicator/total-state-spending/?currentTimeframe=0&sortModel={"colId":"Location","sort":"asc"}

So would $500 billion be enough, a quarter of the overall total? Maybe not, but it also does not seem crazy. All states still have some income still coming in, and the 7 have never shut down. Some states probably have no bailout need. Others might just need a little. And still more might need a lot.

I don't know what the right number is, but you know you're too low if states are cutting spending and laying people off during an economic calamity.

 

[Marvin the Martian]

I don't know what the right number is, but you know you're too low if states are cutting spending and laying people off during an economic calamity.

I would agree, but we just greatly expanded the deficit during economic expansion so we seem to be in bizarre world.

But I will remind our conservative friends that we just massively upped spending and the economy took off, proving beyond doubt that Keynes was right.

 

[Rockfish1]

I would agree, but we just greatly expanded the deficit during economic expansion so we seem to be in bizarre world.

But I will remind our conservative friends that we just massively upped spending and the economy took off, proving beyond doubt that Keynes was right.

It was irresponsible for Republicans to borrow money so they could put more money in the pockets of corporations and wealthy people. That's just a smash and grab. Even proponents of modern monetary theory would oppose that.

But have no doubt: The proponents of austerity will return as soon as they think they themselves are tended to.

 

[CO. Hoosier]

A federal bankruptcy court will not, in any way, interfere with a state making payments to already severely underfunded pension plans? I am skeptical a federal court is going to say, "those obligations are entirely different and you may continue spending on them 100%". Why am I wrong?

There are way too many moving parts here to give you the straight up answer you are looking for. I think as a general matter pension obligations (along with vested PTO, sick pay etc) are generally viewed as earned compensation which are property rights. This is different from a general unsecured creditor. But, once again, I don't think defined benefit obligations are even part of most states general fund budgets. Those are a separate trust funded by employee contributions as well as governmental payroll contributions. I agree back fill is an issue. But that will vary state to state. For those plans actuarially sound, back fill won't even be an issue. Having said that, the state legislature does have control over the structure of the pension plan.

read Frum's article on it being the death of Federalism. His point is that this is a backdoor maneuver by McConnell to force his ideas on what is good governance on blue states circumventing "the will of the majority".

I don't get this argument now any more than I did before. I have no clue what McConnell can do through bankruptcy. My guess is nothing.

It is all for naught anyway, it at a minimum will require Congress to pass a law allowing it and it may take a constitutional amendment.

You might be right, I don't think it would take a constitutional amendment. A change to Chapter 9 of the bankruptcy code would suffice.

I know you are an avid biker. Are bike lanes anecessity? Are parks? Social services? I doubt Colorado has a budget item called "waste and fraud". Colorado has one of the most underfunded pension plans. Right now your state isprojecting a $3 billion shortfall. That is 10% of the total budget, and it is only going to get worse. How much will you vote to raise your taxes? What government services that you use and support are you willing to see the state end? When people think about these things, they always think of the state budget they use as necessities, state budgets others use as wasteful. What items you use are you ready to see eliminated?

I think forcing government officials to make choices about spending priorities is a good thing. Part of Colorado's pension problems are structural which can be fixed with legislative changes. Because of the enormous political pressure brought to bear by the interest groups, the legislature hasn't been willing to bite the bullet. As you probably know, Colorado requires a vote to raise taxes. I have voted for every increase with a single exception. As I said elsewhere, duplication and inefficiencies abound at all levels of government. Having represented several different governments, I readily see that, some of that waste was even spent on my legal services. The problem with the carte blanche bailout is that bad governmental practices are perpetuated instead of cleaned out. As terrible as this pandemic is for all of us, one silver lining might be that all levels of commerce and government will look at operations and come up with efficiencies--except for state and local government if the federal money supply gives them an easy out.

 

[Digressions]

That's a nice analysis, but I get to a similar place through a simpler path. The real interest rate on US Treasuries is negative all the way out to 20 years. Thus the bond market is literally paying the federal government to borrow money. This necessarily means that the market thinks there's a zero risk of inflation and no threat at all to the safety of US Treasuries.

At this moment in time, the federal government's ability to issue debt is essentially unlimited, because the demand for Treasuries is overwhelming. Anyone who thinks we're anywhere near the limit of our borrowing capacity needs to explain what they know that the bond market doesn't.

Again, this is a fairly simple analysis, and maybe there's something I'm missing. But if I'm missing it, so is the bond market.

While I agree with everything you've written. I prefer to utilize the power of the reserve currency. First, it has been an underutilized and largely misunderstood (read: not understood) tool that could be valuable in the future. Second, while we are far from the upper limits of debt and the fed's balance sheet, we actually have a recent history of lowering the fed's balance sheet...the debt, not so much.

The negative from utilizing the fed, is that there is a chance(albeit small) that inflation could ensue. Whereas increasing debt would be moving already existing wealth from other investments and into treasuries. That, however, is a double edged sword. And could limit the ability for other investments to recover. If things get worse and markets continue to decline, how much money will be available to borrow from the public/world?

And what is the limit for increasing debt? What will GDP be this year? In a normal year we would be at ~100% debt to GDP ratio. Where would we be if we back modeled the two different options wrt the GR? If we would have only utilized debt during the great recession, our debt would be roughly $5T higher today. That's no small increase.

Although, we may disagree wrt the exact way forward, I'm sure we can agree that the GOP is braindead when it comes to economic policies. And that we would be much better off utilizing these tools to expand our nation's wealth and giving our citizens a better life, rather than continuing down the unsustainable path of wealth inequality and boom bust economic cycles of the 1920's. Indeed, Republicans are why we can't have nice things.

 

[Digressions]

He offered bankruptcy up as an alternative to a "blue state bailout". It's politics. As is everything with McConnell. I've said it before -- Mitch McConnell is the most despicable US politician of my lifetime. No exceptions. Including Trump. And I'm old.

I have McConnell as a close second to Dick Cheney, but he's still building on his body of work.

 

[CO. Hoosier]

While I agree with everything you've written. I prefer to utilize the power of the reserve currency. First, it has been an underutilized and largely misunderstood (read: not understood) tool that could be valuable in the future. Second, while we are far from the upper limits of debt and the fed's balance sheet, we actually have a recent history of lowering the fed's balance sheet...the debt, not so much.

The negative from utilizing the fed, is that there is a chance(albeit small) that inflation could ensue. Whereas increasing debt would be moving already existing wealth from other investments and into treasuries. That, however, is a double edged sword. And could limit the ability for other investments to recover. If things get worse and markets continue to decline, how much money will be available to borrow from the public/world?

And what is the limit for increasing debt? What will GDP be this year? In a normal year we would be at ~100% debt to GDP ratio. Where would we be if we back modeled the two different options wrt the GR? If we would have only utilized debt during the great recession, our debt would be roughly $5T higher today. That's no small increase.

Although, we may disagree wrt the exact way forward, I'm sure we can agree that the GOP is braindead when it comes to economic policies. And that we would be much better off utilizing these tools to expand our nation's wealth and giving our citizens a better life, rather than continuing down the unsustainable path of wealth inequality and boom bust economic cycles of the 1920's. Indeed, Republicans are why we can't have nice things.

If your objective is to decrease wealth inequality (not income inequality) it seems the way forward you propose is contra-indicated. The multi-trillion increases in spending will end up preserving or increasing the value of assets held by the higher wealth institutions and individuals. To be sure, I don’t think this a reason to not spend what it takes to preserve the economy, but I think it’s a mistake to believe that this will make a better life for the little guy. At best it will maintain that status quo while those at the other end will see flourishing asset values.

 

[Marvin the Martian]

You might be right, I don't think it would take a constitutional amendment. A change to Chapter 9 of the bankruptcy code would suffice

I found this online:

There are two reasons why state governments currently cannot use the federal bankruptcy system to reorganize their debt. First, the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy. The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.
​

The other objection I see frequently listed is it would raise the cost of borrowing for all states.

 

[Digressions]

If your objective is to decrease wealth inequality (not income inequality) it seems the way forward you propose is contra-indicated. The multi-trillion increases in spending will end up preserving or increasing the value of assets held by the higher wealth institutions and individuals. To be sure, I don’t think this a reason to not spend what it takes to preserve the economy, but I think it’s a mistake to believe that this will make a better life for the little guy. At best it will maintain that status quo while those at the other end will see flourishing asset values.

I agree. This is more about preserving the economy than addressing any inequality.

 

[CO. Hoosier]

I found this online:

There are two reasons why state governments currently cannot use the federal bankruptcy system to reorganize their debt. First, the federal bankruptcy code does not allow—and has never allowed—state governments to declare bankruptcy. Since 1937, the bankruptcy code has allowed ‘municipalities’ to declare bankruptcy. The term ‘municipality’ is defined in the bankruptcy code as a ‘political subdivision or public agency or instrumentality of a state.’ This definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities. But it does not include state governments.
​

The other objection I see frequently listed is it would raise the cost of borrowing for all states.

I agree with both points. However, given the economic wreckage the pandemic and shutdown orders have caused, I think Wall Street would see the issues as a temporary cash flow matters and not a structural issue that would affect bond ratings.

After thinking about this some more, here is a way I see that the feds can handle the issue in a manner that would avoid bankruptcy. Recognizing that the state and local government issues are likely to be temporary cash flow issues, I think it would be approprite for the federal government to loan the money on condition that the states begin to process to issue their own general obligation bonds to repay the "bridge loan" made by Uncle Sam. The problem with this is for some stats that have poor fiscal horsepower, like Illinois and New York, issuing G.O. bonds at reasonable interest might be a problem. For those states a bankruptcy reorganization actually would be, IMO, a long term benefit.

 

[twenty02]

That's a nice analysis, but I get to a similar place through a simpler path. The real interest rate on US Treasuries is negative all the way out to 20 years. Thus the bond market is literally paying the federal government to borrow money. This necessarily means that the market thinks there's a zero risk of inflation and no threat at all to the safety of US Treasuries.

At this moment in time, the federal government's ability to issue debt is essentially unlimited, because the demand for Treasuries is overwhelming. Anyone who thinks we're anywhere near the limit of our borrowing capacity needs to explain what they know that the bond market doesn't.

Again, this is a fairly simple analysis, and maybe there's something I'm missing. But if I'm missing it, so is the bond market.

The bond market isn't a great proxy right now....as the Fed is buying up everything with a giant, infinite mop. It's the right thing to do....as the total lack of demand has killed the velocity of money in the system. Money creation through the traditional model (credit) is non- existent... so Fed printing of money through bond buying (and they are buying every bond imaginable).... is basically keeping the system balanced. They are easily able to reverse course and tighten by simply dropping bonds off their balance sheet if inflation concerns creep up in a couple years.

Central bankers have leaned a lot over the last 100 years... and particularly within the last decade.

I don't think it provides carte blanche for the govt to deficit spend without any thought. But it's not a short term concern.

 

[twenty02]

If your objective is to decrease wealth inequality (not income inequality) it seems the way forward you propose is contra-indicated. The multi-trillion increases in spending will end up preserving or increasing the value of assets held by the higher wealth institutions and individuals. To be sure, I don’t think this a reason to not spend what it takes to preserve the economy, but I think it’s a mistake to believe that this will make a better life for the little guy. At best it will maintain that status quo while those at the other end will see flourishing asset values.

My estimation is that wealth inequality will increase out of this situation. Those who own capital assets will be more or less be protected. Those living hand to mouth will take it in the ass, and take years to recover.

 

[i'vegotwinners]

The bond market isn't a great proxy right now....as the Fed is buying up everything with a giant, infinite mop. It's the right thing to do....as the total lack of demand has killed the velocity of money in the system. Money creation through the traditional model (credit) is non- existent... so Fed printing of money through bond buying (and they are buying every bond imaginable).... is basically keeping the system balanced. They are easily able to reverse course and tighten by simply dropping bonds off their balance sheet if inflation concerns creep up in a couple years.

Central bankers have leaned a lot over the last 100 years... and particularly within the last decade.

I don't think it provides carte blanche for the govt to deficit spend without any thought. But it's not a short term concern.

the trillions the fed uses to buy bonds or have loaned at zero or near zero percent to corps for buy backs, have exactly zero velocity outside the markets themselves.

govt welfare of, by, and for, the investor class only.

had those same trillions been used for infrastructure projects or working class welfare or any working class jobs projects, they would have generated many many many times that amount in velocity.

and why would JPM or BOA or Wells Fargo or Citi lend money, when they can make more by using it for high odds betting when any and all gambling loses are 110% plus covered by the taxpayer?

our elected leaders of course know this.. they just don't care.

they know where their payoffs/bribes/money comes from, and they are members of the investor class too, and don't like sharing anything with the working class either.

 

[i'vegotwinners]

I won't argue that point. But Mitch is advocating for gutting them altogether.

Changes are probably important. But what do we do with someonevwhp has worked 35 years and retires in May? Obviously if they completely lose everything, they are totally screwed. How do we change a system to be fair to everyone? My guess is state bankruptcy just leaves a whole lot of people living on social security alone.

i don't think some/many/most paying into state pensions are paying into Social Security at all, while paying into state pensions.

 

[Digressions]

My estimation is that wealth inequality will increase out of this situation. Those who own capital assets will be more or less be protected. Those living hand to mouth will take it in the ass, and take years to recover.

You're correct, and that's why I'm always bringing up fiscal policy( To the point of being annoying about it). Have you ever considered what the world would be like if we had marginally higher top marginal rates and used that money on infrastructure and demand inducing policies? How much is 2% growth in revenue compounded for 40 years worth in terms of paying a higher marginal tax rate, for the wealthy? Because conservatism has given us the opposite.

Can wealth created by revenue be destructed like wealth created from investment? And what does that wealth that's created from revenue represent for the rest of society? At some point, conservatism is something that is being done to all Americans, not for the wealthy.

So, yeah, you're correct with your prediction. Because Mitch isn't going anywhere.

 

[CO. Hoosier]

You're correct, and that's why I'm always bringing up fiscal policy( To the point of being annoying about it). Have you ever considered what the world would be like if we had marginally higher top marginal rates and used that money on infrastructure and demand inducing policies? How much is 2% growth in revenue compounded for 40 years worth in terms of paying a higher marginal tax rate, for the wealthy? Because conservatism has given us the opposite.

Recent history shows us that liberals give us the opposite. The proposed 2009 stimulus package was initially weighted much more towards building things than what we ended up with. I distinctly remember Speaker Pelosi saying that the administrations proposal created too many "manly jobs". She changed the package by diverting funds from infrastructure to expanded social programs and a wider safety net. The liberal wing of the Democratic party claimed that the best stimulus was transfer payments to those who were unemployed and couldn't buy groceries. Of course that ignores the job and demand creating effects of new construction.

I think you are correct by saying that conservatives have a history of not spending money. I think they have overcome that since Trump took office. Not once during his campaign or administration has the phrase "balance the budget" passed his mouth. Trump has mentioned often passing a huge infrastructure bill as and has redoubled his efforts as he connected infrastructure to post-pandemic stimulus. He isn't proposing any way to pay for it other than issuing more debt. After a years long process, I think my thinking has evolved on this.

Can wealth created by revenue be destructed like wealth created from investment?

I don't understand the difference. Can you explain? It seems to me that all wealth comes from revenue. Take the wealth created by the mortgage backed securities racket. Seemingly that wealth came from creating paper then shuffling it through the investment bankers. But in reality, the wealth depended upon the revenure stream of the mortgage obligors, no?

 

[UncleMark]

Trump has mentioned often passing a huge infrastructure bill as and has redoubled his efforts as he connected infrastructure to post-pandemic stimulus. He isn't proposing any way to pay for it other than issuing more debt. After a years long process, I think my thinking has evolved on this.

LOL. 3-1/2 years would be enough.