In late 2010, we finally started to notice something which has been festering for years, like one of those yucky worms that winds up eating your brains and driving you mad: The financial condition of the U.S. States and municipalities—they’re bankrupt.
For fiscal year 2010, the states’ combined budget shortfall is $191 billion. Of that figure, $68 billion is offset by the Recovery Act—Obama’s stimulus. Currently, the 2011 combined deficit of the States will be in the neighborhood of $160 billion—but that doesn’t seem credible, considering the ongoing unemployment. Regardless, $59 billion of those will be offset by the Recovery Act—which still leaves at least $100 billion up in the air. (Source for figures is here.)
However you look at it, the States have a huge collective hole in their budgets. And this hole is going to get worse, before it gets any better—just like the Federal government’s massive yearly deficit.
Which brings me to Federal Reserve policy in 2010—specifically the announcement and implementation of further rounds of “Quantitative Easing”.
Call it QE, call it “liquidity injections”, call it “interest rate stabilization”, call it “Fed balance sheet expansion”, call it “monetary accomodation”—whatever clever name you give it, it’s basically money printing, plain and simple: The Federal Reserve “implements” QE by simply creating money out of thin air, then going out and buying bonds with that new money. Actually, it’s even better than printing money—no bothers with printing presses and such.
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