Friday, June 18, 2010

FT: Gillian Tett on State Finances

Gillian Tett in the FT points at the elephant in the room for the US budget problems. This is not a pretty picture.

Look at state

finances for the real US budget squeeze

If you pop into a toilet on the Seattle waterfront this summer, you
might see over-flowing bins. The reason? A polite notice explains that
"because of 2010 budget reductions", the Seattle government can no
longer afford to "service this comfort station" each day. Hence the

Investors would do well to take note. In recent months,
America's fiscal mess has assumed a rather surreal air. On paper, the
country's federal-level deficit and debt numbers certainly look very
scary. But in practical terms, the impact of those ever-swelling zeroes
still seems distinctly abstract. After all, so far the federal
government has not been cutting spending; on the contrary, there was a
stimulus bill last year. And, as my colleague John Plender pointed out
this week, Treasury bond yields have been falling, as investors flee the
eurozone woes. As a result, those scary numbers still seem to be
problems primarily concocted in the world of cyber finance.

But there is one place where reality is already starting to bite in America -
and that is in terms of state finances. Just look at the statistics. A
report from the US Center on Budget and Policy Priorities issued last
month estimates that in fiscal 2010 the US states collectively posted a
$200bn-odd budget shortfall, equivalent to 30 per cent of all state
Read on for more bad news:

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