Curtailing public spending – a precursor to war

http://news.yahoo.com/s/nm/20091009/pl_nm/us_usa_state_budgets

Excerpt:

Lower tax revenues could lead to higher taxes or another sharp reduction in services if receipts do not show signs of improvement before year-end, as every state but Vermont is required by law to balance their budgets.

That could mean fewer teachers, early prisoner releases and fewer highway repairs as residents battle soaring unemployment. ”

The article repeatedly alludes to “signs of recovery” but from where I am standing, that is just wishful thinking. I will give you that the stock market has bounced higher and farther than most people expected. However, other than the fact that there is little short term relation between the stock market and the economy, similar bounces are not unprecedented in times of deep recessions. What matters is that industrial capacity utilization is still too low, unemployment is still rising and the money multiplier is still stuck below 1 despite the gargantuan financial effort put out by the financial authorities of the world. Finally, credit is still contracting at a fast clip:

http://www.marketwatch.com/story/banks-cutting-back-on-loans-to-businesses-2009-10-09

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