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Federal and State Deficits – Out of Sync

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this 17 carat gold railroad spike was pounded into the ground by Leland Stanford at Promontory Point, Utah on May 10, 1869, to commemorate the joining of the Union Pacific and Central Pacific Railroads to complete the first Transcontinental Railroad.

This 17 carat gold railroad spike was pounded into the ground by Leland Stanford at Promontory Point, Utah on May 10, 1869, to commemorate the joining of the Union Pacific and Central Pacific Railroads to complete the first Transcontinental Railroad.

America was built on Infrastructure. Take the Railroad Era, for example. Infrastructure represents a short term economic boost and long term economic investment. Just ask your average railroad baron. So If you agree that infrastructure spending is a keystone of economic recovery in the United States, then you’re likely to agree that, a) both the Federal and State Governments are critical to infrastructure spending, and b) that concerns about the deficits have to take a back seat to economic recovery.

That is clearly already true about the Federal Deficit. We’re going to hit a trillion a year pretty soon, and we’re going to be spending way more. The economy is so bad, and deflation such a risk, that printing money seems like a very attractive option. Sheets of the stuff will be churned out. The Mint will be working overtime.

But what about the states? Many States are constitutionally mandated to balance their budgets, including California. And none of them print their own money. States have to raise money from taxes, borrow it, or sell bonds to finance themselves. The first of these is a nasty option politically, especially during an economic squeeze, the second is tough sledding, and the third is deeply unattractive for investors. Which leaves the States in a terrific crisis. Among the many things that suffer are – guess what, infrastructure projects, the very lifeblood of the Keynesian (boy, is he back with a vengeance) recovery.

Problem? Uhh, yeah. Read the rest of this entry »