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The Heritage Foundation says the multi-trillion-dollar increase in publicly traded federal debt in the US is contributing to a global “debt bubble:”
This debt explosion is likely to raise interest rates significantly for government debt, thereby increasing interest costs for future generations. More troubling at the moment, this policy will increase interest rates for all private debt such as home mortgages, consumer loans, and business loans. The near-term consequences of this debt bubble will be a deeper recession, a longer recession, and a weaker eventual recovery.
This will be compounded by the rest of the world following our lead, as the Obama Administration advocates.
The U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation.
But, as The Wall Street Journal points out, national governments aren’t the only players:
[State and local governments] should use the remaining $229 billion they’re getting in stimulus money to put their fiscal houses in order. If they don’t, they risk burdening their constituents with devastating taxes in the near future.
Local and state governments face such peril in part because the federal government is about to saturate the market for U.S.-based debt — including debt issued by municipalities — as it props up failed financial institutions and distributes stimulus money. The federal government could overwhelm the credit markets. In the third quarter of 2008 alone, the amount of federal-government debt surged by 39%. This was “the largest quarterly growth rate recorded,” the Federal Reserve recently reported.
So what are states and local governments doing? Some are cutting corporate taxes, some are creating local versions of the New Deal, and others are putting together stimulus packages of their own while waiting for their serving of Federal pork.
But leaders of many struggling cities and states say they can’t afford to wait for their slice of that pie. They face substantial financial hurdles to acting on their own: Their tax revenues are declining, forcing some to slash budgets. They’re constrained by balanced-budget requirements — unlike the federal government, they can’t run up deficits or print money. Still, they’re floating bonds, raiding reserves and shuffling money among various accounts to free up capital for local stimulus efforts.
In Lancaster, Calif., for instance, where the unemployment rate has hit 15.2%, the City Council voted to take $500,000 from a reserve fund to try to spark consumer spending. Anyone who spends $300 at local businesses will get a $30 gift card from the city.
Smart use of surpluses for the rainy day that is upon state and local governments, or following a path that leads over a financial cliff? We’ll have to see, but I don’t think it will end well for local taxpayers.
Via The Foundry
How free are you? You can find out how your state’s policies affect individual freedoms in Freedom in the 50 States: An Index of Personal and Economic Freedom
This paper presents the first-ever comprehensive ranking of the American states on their public policies affecting individual freedoms in the economic, social, and personal spheres. We develop and justify our ratings and aggregation procedure on explicitly normative criteria, defining individual freedom as the ability to dispose of one’s own life, liberty, and justly acquired property however one sees fit, so long as one does not coercively infringe on another individual’s ability to do the same.
This study improves on prior attempts to score economic freedom for American states in three primary ways: (1) it includes measures of social and personal freedoms such as peaceable citizens’ rights to educate their own children, own and carry firearms, and be free from unreasonable search and seizure; (2) it includes far more variables, even on economic policies alone, than prior studies, and there are no missing data on any variable; and (3) it uses new, more accurate measurements of key variables, particularly state fiscal policies.
The winners: Alaska is tops in personal freedom, New Hampshire in fiscal policy, South Dakota in economic freedom and Michigan in regulatory policy.
H/T Freedom Politics