Schwarzenegger Makes Tough Decisions; Is Nova Scotia Heading In A Similar Direction?

RawStory.com has an article here in regard to the cuts coming out of the Governator's office in California.

Here's a list of some programs that will be hit by the budget cuts:

• California's welfare-to-work program
• Childcare for low-income families
• Community mental health
• A freeze on local school funding
• Cuts to state workers' pay
• State worker pension reform
• State parks
• Prison system

The transition individuals who depend on these programs will experience as they find new solutions will certainly be painful. Local governments and communities will certainly have to step up to assist their neighbors in need. Thankfully, the new budget does not increase taxes which would be devastating to an economy suffering 12.6% unemployment.

There is a large amount of opposition to the budget, but no other real solutions are being offered to fill the $19.1 billion budget deficit. In fact,  Schwarzenegger's budget only closes the gap by $12.4 billion, leaving $6.7 billion in deficit spending for a State government already drowning in debt. While the state Democrats are attacking the Governor for the cuts, fiscal conservatives could make a strong argument that this budget is too liberal as is and further cuts are required to address the remaining deficit.

Earlier today I was listening to Marc Faber discuss why he was long on the Euro over the US dollar even though many believe the Euro will take a big hit as the EU attempts to bail out Greece. His primary reason for picking the US dollar over the Euro was California. The bankruptcy (or bailout) of the State of California, because it is significantly larger than Greece, will burden the US economy far more than the bankruptcy of Greece will damage the European economy. In the new budget, California is counting on $3.4 billion in help from China, Saudi Arabia, South Korea, and Europe Washington, D.C., and one can only believe that will be just the beginning of what it will take to get California back on its feet as the state continues to run massive deficits.

Now. Take a hard look at your national or regional government and the people running it. Are they enabling a situation to occur similar to that of California or Greece? Are they further indebting the public they are supposed to serve and leading them to an era of poverty?

Here in Nova Scotia the NDP recently passed a budget running a $222 million deficit. Nova Scotia's total debt is $14 billion, with a 36.9% debt-to-GDP ratio. In Canada, this is second only to Quebec.

Bruce Wark from The Coast made the following commentary in regard to Nova Scotia's debt:

I quickly flipped to the budget table showing government expenses: $3.6 billion for health; $1.3 billion for education; $971 million for social supports such as welfare, money for poor kids and public housing. All that added up to more than $5.8 billion or almost two-thirds of Steele's $9 billion budget. Health, education and welfare must, therefore, be largely responsible for the elephantine NS debt, I concluded.

My reasoning stirred more nagging questions. Why does our technology-driven health system put expensive band-aids on the ailments of affluence---heart disease and stroke, cancer and diabetes----when real health depends on things like adequate nutrition, loving relationships, plenty of leisure and a decent income? Ka-ching! Why do we coop young people up in classrooms for at least 15 years memorizing stuff they could learn in half the time and saddling them with serious debt in exchange for the paper credentials required to get a good job? Ka-ching! And could it be that we spend almost $1 billion every year supporting people who fall through the cracks because we'd rather maintain an expensive poverty system than work toward shrinking the income gap between richest and poorest?

With the Bank of Canada keeping interest rates near 0, Provincial governments have been enabled to borrow to destroy business stimulate economies through the recession. Governments, like the Province of Nova Scotia, typically even bring out a committee of witch doctors statist & keynesian economists promoting the deficits to promote job growth (all the while ignoring that fact that deficit spending for the past decade hasn't helped Nova Scotia job growth).

Is a province like Nova Scotia in dire straights currently? Nope. But just wait until interest rates rise, and they will.

During the early 1970s the US inflated their currency much like the Bank of Canada is doing right now. They did it to pay for government deficits and an unjust war in Vietnam. By the end of the decade the country was suffering through stagflation; the economy was in a recession and price-inflation was on the rise in a big way. The Federal Reserve could have continued to inflate, sending the economy into a hyper-inflationary spiral (like the Weimar Republic in Germany, Zimbabwe, Argentina, and many other irresponsible governments) or they could raise interest rates as high as 21% to choke off the inflation. They raised interest rates, choked off inflation and stablized the economy. If government debt then had been as large as it is today, many western governments would have been forced to default due to massive increases in interest payments (much like many Americans were forced to default on their mortgages after their teaser rates jumped).

In years to come Canada will face a similar decision. We're borrowing large amounts of money to pay for our governments' deficits and an unjust war. Due to the inflationary policies of the Bank of Canada over the past few years, we too will face the option of hyper-inflation or spiked interest rates. If we choose spiked interest rates, our governments are screwed. Interest payments will consume significant portions of government budgets forcing higher taxes, massive budget cuts, or both. If we choose hyper-inflation we're all screwed anyway, so fuck it.