NYC Mayor, Mike Bloomberg, apparently hasn't learned anything from ongoing events in Europe. As New York City's budget shortfall grows, Bloomberg believes he can conquer it by laying off thousands of public workers.
| In his updated four-year city financial plan, Bloomberg details roughly $1.6 billion of cuts designed to balance this and next year's budget. "The bottom line is we don’t have the money, but we do have the obligation to provide the essential services," Bloomberg said. Overall, the city's workforce will be reduced by about 2,000 people before the first of the year and more than 8,000 people in 2012, including teachers. There will be a total of 6,000 layoffs. The rest will be through attrition. A wide range of departments will face cuts, including the New York City Police Department, the New York City Fire Department, the Department of Sanitation, youth services, senior services and libraries. Bloomberg is also calling for week-long furloughs at the Department of Transportation -- a move that requires union approval. Specifically, the mayor's budget team proposes closing 20 fire companies at night, meaning approximately 400 firefighting shifts between 6 p.m. and 9 a.m. could be eliminated. |
This will not only hurt the economy and shrink the tax base, causing the city's deficits to grow even bigger, it will also dramatically reduce public safety. It's a horrible solution.
Instead of firing workers Bloomberg should be down in D.C. lobbying lawmakers for more Federal aid to the states because only the Federal Gov't, as a currency issuer, can do that. States can't. Instead, Mayor Mike goes around giving lame speeches about how the United States "doesn't have any money." (Meanwhile, we somehow "found" $32 TRILLION over in the past six months to pay bond holders.)
The talk of "belt tightening" and "sacrifice" is hypocritical because it flies in the face of statements by Bloomberg and other big city mayors and governors around the country about not wanting to raise taxes. Spending cuts are the fiscal equivalent of tax increases in that they remove private sector income. That is a tax increase by any other name and it's unfair because it targets those least able to pay.
Who benefits? Wall Street firms and the wealthy, who see their share of income rise proportional to the rest. There's no secret why the income gains of the 1-percent is far outstripping the gains of the 99%. It's all due to policies designed to make that happen.
36 comments:
"the Federal Gov't, as a currency issuer"
Technically the Federal Reserve is the currency issuer. It is constitutionally part of the executive branch of the state but I don't think it really qualifies as being part of the government.
Though the treasury does issue coins
Semantics. The Fed cannot appropriate or conduct fiscal policy. Congress has the purse strings. The consolidated (financial arm) of the government is the Treasury and Fed. The Federal Gov't instructs the Fed to pay its bills in whatever amount it deems necessary. The Fed must comply.
http://www.federalreserve.gov/
.gov means government. The FRS was created by act of Congress, the Federal Reserve Act, as the central bank of the United States. The FRS is not part of the executive, legislative or judicial branches. It is politically independent. It has been called the fourth branch of govt.
Mike this is from the speech by Bloomberg at your link:
"But Washington doesn’t have that problem. It effectively prints money, while the rest of us have to earn it. And so even during the good times, when responsible management of the budget would’ve meant saving money, Washington was gorging itself on debt."
He has been made such a moron he does not even see the contradiction in his statement here... I pity him .
resp,
The Federal Reserve System is listed on the government's website (usa.gov) as an independent agency within the executive branch of government:
http://www.usa.gov/Agencies/Federal/Independent.shtml
So I guess it is part of the government. Most people would however probably think of congress, the senate, the president etc when the word 'government' is mentioned. But you're right.
I am finally coming to the conclusion that the people running things are actually stupider than they are evil (self-centered).
I agree that a contradictory statement like that, coming in the same breath, qualifies him as a moron.
"The Fed cannot appropriate or conduct fiscal policy"
Isn't the Fed buying of mortgage-backed securities and corporate bonds basically a form of fiscal policy? Also, isn't central bank buying of gold basically fiscal?
(A bit pedantic)
Mosler bonds for NYC!
BTW, Boobberg's security and staff should get cut first. And the bike couriers can show him how to get around on two wheels.
JJ -
It's just an asset swap. Doesn't add new money to the economy.
Unforgiven:
In the case of government bond purchases the fed is just exchanging one type of government-created asset for another (bonds for reserves/cash), but when the fed buys privately-created assets (such as morgage-backed securities), it's doing something else - it's swapping privately created assets for government-created assets, as congress does when it spends. It's the same in the case of gold. No?
Tom,
I'm thinking this has to be a significant spiritual operation we are witnessing with these people...
Resp,
Fiscal means an injection of NFA into non-government. If the Fed buys non-government MBS iGSEs are now govt) and there is a default, then there is an NFA add. If the Fed buys gold from US mines, then there is an add to NFA also.
But these have to be justified under Fed powers. Only Congress can legitimately conduct fiscal policy directly.
The title says it all, Bloomberg seems to care more about contracts for cronies than education which requires teachers.
"City Council hearings: More cuts to schools and even larger classes next year as contracts grow fatter??"
http://nycpublicschoolparents.blogspot.com/2012/03/city-council-hearings-more-cuts-to.html
Matt, it's called "hardening of the heart" in the OT and NT.
"then there is an NFA add"
MBS's would have been created with bank credit - i.e. a bank originally extended credit to create the mortgage, and then the whole process of repackaging it and selling it on would have involved further credit expansion. When the Fed steps in to buy the MBS, it adds NFAs that were not originally present(unlike, for example -in general- with govt bond purchases). So it's basically a fiscal operation. Whether there's a default on the MBS or not doesn't change things, does it?
The debtors on the other end - those who originally took out the mortgages - still have to pay up, (unless they default), but the banks that created the assets end up holding government-created assets (NFAs) whereas before they only had bank-created (credit) assets.(?)
Tough one to put a finger on.
I guess you'd have to throw time in to the equation as the cash flow from the MBS would go to the Gov't, draining NFA from the private sector. If there's a default, then it depends on how it all settles out. With the market moving, difficult to say exactly what the outcome will be. They might sell those securities back to the private sector for a higher price. Check here:
http://moslereconomics.com/2012/03/22/did-taxpayers-really-profit-from-treasury-mortgage-program-us-business-news-blog-cnbc/
So the answer is yes, no and maybe.
Good point. I was ignoring the fact that the banks still have to settle in NFAs with the government as intermediaries between the mortgage debtors and the government.
'government', as in the Fed.
As far as gold goes, Richmond Fed sez "We don't "DO" precious metals"
http://www.richmondfed.org/faqs/gold_silver/
So as Tom says, if the Fed is buying up 'toxic' (i.e. default-ridden) financial assets, then it's basically engaging in a type of fiscal operation - without the usual direct democratic mandate.
It's essentially handing out public sector 'financial wealth' (NFAs) to the banking/financial sector in an attempt to maintain the status quo/ keep the show on the road. Basically it's a case of using the public purse to prop up powerful private interests without the legitimacy bestowed by the democratic process (though of course it could be argued that the banks are so central to everyone's financial wealth that it moments of crisis they necessarily have to be supported). It makes me think that Bill Mitchell might be on to something with his bank nationalisation plans.
It's funny - over in MMR world, the supposed 'seperation of powers' between state and private finance is seen as a good thing, but when it comes down to it it's really just a case of the state giving undue privilege to certain powerful private interests, and supporting them at all costs..
Though I wonder if Bloomberg doesn't have a stash of tin cups that he's waiting to make a killing on.
Of course, they'll have been made in China....
*in, not 'it'.
Personally I think Warren and Randall's ideas for banking reform make more sense though - blanket nationalisation seems a bit totalitarian, though I do like the idea of having a couple of state banks in 'competition' with private banks.
One of the big issues in my mind is the fact that the Fed hides its operations behind the veil of political independence, so that no one knows what is actually going on.
I suppose the flip side of that is the fear some have that an non-independent central bank would simply be the servant of every passing political whim - potentially leading to financial apocalypse... (Austrian universe)
Here's a reasonably interesting blog post by the BBC's Paul Mason.
http://www.bbc.co.uk/news/business-16413230
He mentions the situation in Hungary - the government there is attempting to reduce the central bank's independence, and the Eurozone countries, surprise surprise, don't like it.
Why the hell are the Eurozone clowns so hell bent on surrendering their democratic sovereignty to the banks?
I think Paul Mason might be ripe for an introduction to MMT. Someone needs to make contact (Warren). He's yearning for what Warren et al have to offer. And he's on BBC's Newsnight every other day.
JJ, as I understand it, if the Fed purchases a financial asset from non-govt that involved credit money to begin with then that liability remains in non-govt and there is no NFA add. Reserves used in settlement are not NFA. For example, a mortgage involves a bank loan (bank asset) and corresponding bank liability (deposit advanced to purchase). So too, the mortgage is a liability of the borrower and the difference between this liability and the value of the house is homeowner equity. Mortgages are regularly bought and sold and it doesn't matter whose books they are on.
However, if the Fed purchases non-financial assets, say houses instead of mortgages, then there is a net add of NFA to non-government, to the degree that there is no corresponding liability in non-govt involved.
If I didn't get this right, hopefully someone more knowledgeable will set matters straight. But this is what I took away from various discussions about NGDP targeting.
JJ: "I suppose the flip side of that is the fear some have that an non-independent central bank would simply be the servant of every passing political whim - potentially leading to financial apocalypse... (Austrian universe)"
That's the fear factor that makes this anti-democratic and anti-capitalistic arrangement acceptable.
"the mortgage is a liability of the borrower"
The mortgage is a debt of the borrower, not a liability.
The mortgage contract is an asset of the bank, and the credit extended by the bank (the mortage sum) is a liability of the bank.
When a bank extends a mortgage they create a financial asset for themselves and a corresponding liability. The borrower creates a debt for themselves and gains ownership of a real asset.
If the Fed buys the mortgage from the bank then the bank is left with a net asset (reserve/cash) and the borrower now owes their debt to the Fed. But when the borrower pays the mortgage off, their bank has to transfer reserves to the Fed (when it comes to settlement between them).
?
Is that incorrect? (apologies for the non-technical language)
"Reserves used in settlement are not NFA"
I thought reserves were NFAs?
"That's the fear factor"
"Let me assert my firm belief that the only thing we have to fear is, fear itself — needless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance"
You know who.
JJ, when the Fed lends reserves to the banking sector it doesn't increase non-govt NFA. The Fed lent the banks 30T over the last several years cumulative. That lending did not increase non-govt NFA.
The borrower has a book just like the bank.
Assets = Liabilities + Equity
Asset (house)
say, 100K
minus Liability (mortgage obligation)
say, 95 K
equals
Equity in house
5K (eg, down payment)
All balance sheets look the same and in every transaction, there must be corresponding entries in the counterparties' books, both income statement and balance sheet. Everything must to net to zero in double entry bookkeeping as a matter of standard accounting practice. This is the bottom line of making sense.
It's fairly simple to understand at the superficial level but drilling down it gets complicated pretty quickly. This is why most economists don't know much about actual accounting practice. Many of them probably never went past Accounting 101 and very few have drilled into reserve accounting. That is what makes the MMT economists rather unique, although some Circuitists like Marc Lavoie are also experts in this area, as is Charles Goodhart, who was a central banker in addition to being an academic economist.
OK.
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