Rebel Traders – Analysis Without The Hype

As I reported on yesterday (New Jersey Cuts Pension Contributions And Cuts Aid To Schools), the impact of the Governor’s plan to cut school aid by $820 million is already being discussed at just about all school boards across the state. School boards are already facing their own budget issues and they rely on the aid from the state to help offset some of the costs.

There are more than a handful of school systems around the state that should be shut down entirely for poor performance and wasteful spending at the tax payers expense. But, in many of the smaller towns and municipalities there are some good schools, and some good teachers. And it is likely that the smaller the community, the deeper the impact will be under Governor Christie’s planed budget cuts as it is the smaller towns that are experiencing more of a declining student population and revenues.

I already know of some school boards in my part of the state that are projecting upwards of 10% reduction in staffing should the budget cuts become reality. The layoff calculation is based on the NJ Department of Education 2009 stated number of teachers in the state, and that number is 112,933. The New Jersey Education Association (NJEA) states that their membership is 178,858 teachers, and this number includes support staff. As it is likely that the budget cuts will impact the support staff as well as the teachers I have simply taken the difference between the two in order to be conservative in my calculation. And I also estimate that the staffing cuts will range between 5% and 10%, so to keep things simple I used 7.5% as a middle of the road figure. Based on these conservative calculations it is that I estimate that upwards of 10,950 teachers and staff will be directly impacted in New Jersey.

Should the average staff reductions be closer to the 10% number then staff reductions could climb to 14,590.

This will likely be a very heated and contentious battle, and it is likely to end up in the courts. 

The newly seated Governor Chris Christie is taking hard steps to curtail costs. His plans won’t be popular to say the least.

New Jersey Governor Chris Christie proposed a $29.3 billion budget that would suspend property-tax rebates, skip the state’s $3 billion pension contribution and fire 1,300 workers next year. […]

The plan would reduce aid to schools by $820 million, towns by $446 million and higher education by $173 million. […]

Christie said he will ask lawmakers to institute an immediate 2.5 percent spending cap on state and local governments. The legislation would be used until a permanent, constitutional amendment can be approved. […]

[…]“All this is doing is pushing the state’s budget problems down to the local property taxpayers,” Assembly Budget Committee chair Louis Greenwald, a Cherry Hill Democrat, said in an interview yesterday. “I get the argument that the wealthiest New Jerseyans have options, but I wish they would get the message that many middle-class taxpayers don’t.” […] (Business Week)

Here in the State of New Jersey we have the highest property tax of any state in the nation. The property tax rebate (aka homestead rebate) was, albeit not much, at least something to offset the record high property taxes in New Jersey. Without the tax rebate to offset property taxes it amounts to a property tax increase for New Jersey home owners.

A reduction in aid to municipalities has a deep trickle down impact. Towns of all sizes, who are already facing their own budget problems will be forced to either raise local taxes, or curtail services even further, thus increasing those who are forced out of a job.

Moody’s is going to fire a shot across the bow of the USS Obama administration on Monday. The warning shot will state that even the current budget plan that the Obama administration has laid out may still not be enough to save the the AAA rating of the United States.

[…] unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.” […]

[…] Pierre Cailleteau, head of sovereign ratings at Moody’s, said: “The size of debt makes the US vulnerable to an interest rate shock . . . but the level of fiscal ambition is not one that secures for sure the [triple A] rating.”

Moody’s worries that the government will struggle to get political agreement either to raise tax revenues significantly from their current low of 14.8 per cent of national income, or to cut federal spending far from its high of 25.4 per cent of national income.

The report follows concerns recently expressed about the US public finances from the other large rating agencies. Standard & Poor’s warned last week the triple A status of the US was at risk unless the country adopted a credible medium-term plan to rein in fiscal spending. Fitch Ratings issued a critical report on the US in January.[…] (The full article can be found at the FT)

Now all three of the ratings agencies have put the United States on notice. Either cut spending by significant amounts, or raise taxes significantly. Which way do you think the administration will go?

The Congressional Budget Office (CBO), in its new report issues today shows the budget deficit to be even worse than that of President Obama’s own projections.

[…] The nonpartisan Congressional Budget Office predicts that Obama’s budget plans would generate deficits over the upcoming decade that would total $9.8 trillion. That’s $1.2 trillion more than predicted by the administration.

The agency says its future-year predictions of tax revenues are more pessimistic than the administration’s. That’s because CBO projects slightly slower economic growth than the White House.

The deficit picture has turned alarmingly worse since the recession that started at the end of 2007, never dipping below 4 percent of the size of the economy over the next decade. Economists say that deficits of that size are unsustainable and could put upward pressure on interest rates, crowd out private investment in the economy and ultimately erode the nation’s standard of living. […]

[…] The report says that extending tax cuts enacted in 2001 and 2003 under GOP President George W. Bush and continuing to update the alternative minimum tax so that it won’t hit millions of middle-class taxpayers would cost $3 trillion over 2011-2020. The tax cuts expire at the end of this year and Obama wants to extend them — except for individuals making more than $200,000 a year and couples making $250,000.

For the ongoing budget year, CBO predicts a record $1.5 trillion deficit. That’s actually a little better than predicted by the White House, but at 10 percent of gross domestic product, it’s bigger than any deficit in history other than those experienced during World War II. […]

I am old enough to remember when a Trillion dollars was a big deal.

What happens when tax revenues continue to fall due to the worsening employment situation? You don’t have enough money to run your town, city, or even the state is what happens.

New York Governor David Paterson told his legislature tonight that the state has only 4 and 1/2 weeks of money left.

[...]“We’re going to run out of cash in four and a half weeks. We are going to run out of money. Unless we do something about it, (it will) threaten generations,” Paterson said.

And so began what is turning out to be a tense tug of war between Gov. Paterson and the Legislature.

The governor says $3.2 billion in cuts must be enacted how — or else. The cuts range from $500 million in agency spending to over $1 billion in already committed in aid to school districts and hospitals.

“I will mortgage my political career, but I will not mortgage the fate of the State of New York,” Paterson said.

But Senate Democrats, with their tenuous 32-30 hold on the upper house, are terrified to make school and hospital cuts because, they said, the cuts could mean increases in local property taxes.

And that could mean suburban Democrats on Long Island, in Westchester and other parts of the state could have trouble getting re-elected next year.[...] (source: CBS 2 New York)

For heavens sake, don’t try to balance the budget by making tough decisions or you just may lose elections. Is winning elections really that more important than finding a workable solution to the budget problems? I guess it is and so now you know part of the reason why it is we continue to have this nightmare economy.

Now this is healthy for the economy… NOT

Budget Deficit

WASHINGTON – The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar. [...]

[...]The soaring deficit is making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could also force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.

“These are mind-boggling numbers,” said Sung Won Sohn, an economist at the Smith School of Business at California State University. “Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run.”

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to $1.09 trillion. The administration forecasts that the deficit for the entire year will hit $1.84 trillion in October.

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.[...] (Source: Associated Press)

Well at least it is a start. President Obama said “We are out of money” during a C-SPAN interview. Like any addiction the individual has to admit the problem. I am glad you admit that the nation is broke Mr. Obama, now tell us how you intend to fix it when you keep handing our more money to banks, insurance companies, auto makers, and credit card companies. But when it comes to California he says no.

C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.

So we've got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it's putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.

So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don't reduce long-term health care inflation substantially, we can't get control of the deficit.

So, one option is just to do nothing. We say, well, it's too expensive for us to make some short-term investments in health care. We can't afford it. We've got this big deficit. Let's just keep the health care system that we've got now.

Along that trajectory, we will see health care cost as an overall share of our federal spending grow and grow and grow and grow until essentially it consumes everything...

SCULLY: When you see GM though as “Government Motors,” you're reaction?

OBAMA: Well, you know – look we are trying to help an auto industry that is going through a combination of bad decision making over many years and an unprecedented crisis or at least a crisis we haven't seen since the 1930's. And you know the economy is going to bounce back and we want to get out of the business of helping auto companies as quickly as we can. I have got more enough to do without that. In the same way that I want to get out of the business of helping banks, but we have to make some strategic decisions about strategic industries...

SCULLY: States like California in desperate financial situation, will you be forced to bail out the states?

OBAMA: No. I think that what you're seeing in states is that anytime you got a severe recession like this, as I said before, their demands on services are higher. So, they are sending more money out. At the same time, they're bringing less tax revenue in. And that's a painful adjustment, what we're going end up seeing is lot of states making very difficult choices there...

Source: Drudge Report