December 8, 2010

The Deepening Hole

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Chart of the day calls this the Chart of the year.

After hitting the nadir of job losses relative to our peak inter-recession employment, we have essentially flatlined for far longer than any other post-recession period. Nothing in the data shows a hint that we will soon break out of that pattern either, and Ben Bernanke says we’ll probably go four to five more years on this same trajectory.

The Wall Street Journal reports that 14% of the population, almost 43 million people, collected food stamps last month, up 16% from one year ago.

As Walter Russell Mead writes, even the New York Times is warning: Blue State Armageddon on the Way

The global financial crisis could be heading to a blue state near you: that is the latest grim news from the New York Times: “Mounting Debts by States Stoke Fears of Crisis.“ Normally a cheerleader for the free spending (in bluespeak, compassionate) policies of the public sector union dominated, high tax, high cost states like California, Illinois and New York, the Times now warns that fiscal ruin could be at hand.

The problem is state debt. New York, California and Illinois look more like Greece to their bondholders every day.

--A deeply disturbing graph shows a true panic underway as investors pull money out of mutual funds that invest in municipal bonds even faster than at the height of the market collapse in October 2008.

--If things go wrong in the markets for blue state debt, watch out. If big blue states like New York, California and Illinois hit a point of market failure when private investors will no longer buy their bonds, Washington will have to decide what to do. Fast. It will be ugly, and it will hurt. ...

The fiscal meltdown of the big blue states, if financial Armageddon actually arrives, will be the biggest domestic crisis for the American people since the Depression, and the biggest crisis for the Democratic Party since the Civil War. ...

James Pethokoukis muses whether there is a Secret GOP plan: Push states to declare bankruptcy and smash unions.

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

Posted by Jill Fallon at December 8, 2010 11:10 AM | Permalink