The End is Nigh

At some point the money runs out.  There are only so many dollars to dole out, euros to expend, and yen to spend.  The can cannot be kicked down the road once again.  At some point the can reaches the end of the road.

We are increasingly reaching this point around the world.  The point at which the only choices left are either tough or bad, or both.

The headline in yesterday's Cincinnati Enquirer provides an example of the place we are coming to as it reported on the City of Cincinnati's choices on its fiscal problems.  Cincinnati is not unique.  There are stories like it all over this country...and in other places around the world.

CITY COUNCIL: NO property tax hike

Which means: NO swimming pool renovations .... NO new police stations ... NO new police and fire vehicles ... NO new playgrounds ... NO more money for Music Hall renovation, repaving streets or building demolition

Today's Cincinnati Enquirer turned its attention to Hamilton County's (Ohio) budget choices.

County cuts could mean 'anarchy'

Planned Hamilton County budget cuts could mean convicts will have less supervision, the courthouse may close one a day week, and mortgage paperwork could be delayed. 

Chief probation officer Mike Walton, put it this way: “It’s called anarchy.” His department faces a 30.9 percent budget cut.

Faced with up having to slash up to $24 million to balance the 2013 operating budget, Hamilton County department heads learned just how much they’ll have to cut.

Of course, California has its only challenges as reported in this Reuters story

California likely will need to cut spending more: S&P

California's $15.7 billion deficit is about 30 percent of the total gap all states face in the coming fiscal year, Standard & Poor's said in a report on Monday, saying the state likely will have to cut spending further to balance the 2013 fiscal budget.

We are all familiar with the stories out of Europe.  This headline from The Telegraph in the U.K. about Greece is just one example.

However Greece votes, there is no way out of austerity

The key fact for Greece is that it is running a current account deficit of between 7-8 per cent of GDP, and a fiscal deficit of around 7-8 per cent of GDP. Or in other words, Greece – the entire nation – is borrowing around 8 per cent of its national income from abroad every year. All in bail-out funds.

The reason for that is because between 2002 and 2010, the euro masked a fundamental loss of competitiveness; cheap money flooded in from German savings, funding a profligate and corrupt government's deficit, and pushing up wages and prices. Over the period, Greek wages increased by 30 per cent, while German ones fell by 8 per cent. In the single currency, that was unsustainable, and when it stopped, it stopped very suddenly indeed.

All roads are leading to the road where the can has been kicked down the road.   And that road is a dead end with only one way out-walk back and reverse all the excesses that led to the debt spending binge.

The time has come for government to live within its means.  Spending no more than what they take in from tax receipts and understanding that trying to increase taxes under the economic environment today is a losing proposition that few voters will accept.

Our elected officials also have to realize that the era of big benefit and retirement packages for government workers is over.  Look at the headlines above.  Voters are simply not going to accept reduced police, fire and other essential services in order to preserve the rich pension and health care benefits of government workers.

The same is true for entitlement spending.  It will not survive in its current form. We are close to only having only enough in tax revenues to pay for entitlement spending and nothing more.  It is unsustainable and people are not going to give up all of the other things that government provides to pay for entitlement spending.   There is a need for national defense, prisons, national parks, highway spending and other basic services.  

No one likes to pay taxes.  However, there has generally been a connection between these costs and some form of benefit.   We are at a point where this connection is being lost.  If I pay taxes to my city and I don't get adequate police protection, schools and paved roads but the city employees are getting a rich pension, there is a problem.  The same is true at the federal level.  Two-thirds of federal government spending is not to support government functions but is a direct payment to individuals in entitlement spending.  This is simply not supportable or sustainable over the longer term.  In the end, it will not stand.

There is little question how this will end. The difficult task to predict is when it will end.  However, the end is nigh.