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  • O Canada!

    There are those who say the US is doomed, that there is no way out from our problems with deficits, future entitlement promises, and a dysfunctional political system. And in my darker moments I worry that they are right.

    I get the problems, probably more than most. But there is a way out. Hopefully, it does not entail collapse first, as some suggest. But it will require a lot of hard decisions. Some will be very hard.

    For example, many point to the unfunded Medicare liabilities of some $70 trillion. I don’t worry about them so much, as they will never be paid, at least not under the current system. LONG before we get to that point, there will be a crisis that will force us to deal with the issues. Rule: if something can’t happen, then it won’t. We can’t pay the Medicare bill, so it won’t happen. Something else will happen in the meantime. It may not be good or pleasant, but something will come along to change the rules. More taxes? Fewer benefits? That is up in the air. But the system as it currently stands will not be allowed to prevail. Ask Greece how that is working out for them.

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  • Recession Continues to Batter State Budgets; State Responses Could Slow Recovery

    There were a lot of questions last week when I wrote about public pensions. So for this week’s Outside the Box, I offer you some more information about how bad the state deficit situation is, and for your specific state. States are having to cut more than 1% of national GDP in fiscal 2011, as federal stimulus money is slowly drying up. And that is just states. Local municipalities and schools have a similar problem. And then add on the possibility of the Bush tax cuts going away and that is a very serious situation. It is why I am so concerned and vocal about the need for the Bush tax cuts to be extended for at least one year until the economy is growing above stall speed. The headwinds from cities and states are severe, as you can see.

    Basically, the states were profligate going into the downturn, and they have enormous costs going forward, so even for 2011 and 2012 they are going to have massive budget deficits. Some, like Illinois and Nevada have shortfalls of 40-50%. That is simply not sustainable.

    The research is from the Center on Budget and Policy Priorities at http://www.cbpp.org/cms/index.cfm?fa=view&id=711 . for those in the US, I think you will find it interesting to see how your state is doing. For those outside, look and see how much the problem is in terms of GDP and realize what impact that is going to have on the overall US economy.

    I am at the airport in Omaha with Trey on a trip looking at schools, and on to Illinois tonight. It is a lot cooler here than in Dallas, at least.

    Your data watching analyst,

    John Mauldin, Editor Outside the Box

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