New York State Lives From Paycheck to Paycheck: Implications for Gold

In titling a grim article New York State Has First Deficit in General Fund, the NYT actually manages to understate the problem. Here are excerpts:

"New York State is officially living paycheck to paycheck,” said Thomas P. DiNapoli, the state comptroller . . .

Unpaid bills are already piling up. In September, the shrinking general fund balance forced Gov. David A. Paterson to delay a billion-dollar payment into the state’s pension system. This month, he delayed $750 million in payments to school districts and local governments . . .

Months ago, state budget officials said that without significant cuts, spending out of the general fund was projected to grow 37 percent through the 2013 fiscal year, while revenue was expected to grow only 3.4 percent. . .

(The above projection does not, I assume, include the substantial additional Medicaid costs that healthcare "reform" will impose on New York State. Yet Senators Schumer and Gillibrand favor the bill even though I am unaware that New York is getting a Federal gift on that front as are Louisiana and Nebraska.)

First California, then New York; New Jersey apparently is in pretty bad shape as well.

Meanwhile the "red" states of Texas and Florida have kept spending in check, are not internally politically dysfunctional as New York is said to be:

The deficit, analysts said, was a barometer not only of the New York’s fiscal peril, but of the political stalemate in Albany that has left the state spending more money than it can afford for months.

Yours truly is a small government advocate for reasons that are increasingly visible. Government is too important to fail. The Empire State should not be living paycheck to paycheck, though this would be understandable in a Great Depression, not a Great Recession.

Unions have failed in most of the country except in government, where their advantage is best seen in difficult economic times.

Problems at the state and local level are going to exert a strong anti-growth pull on economic activity. Presumably the Obama administration will respond to the troubles in the "red" states with more aid. If they can help GMAC, they can't afford an "Obama to New York: Drop Dead" headline. How will all this aid be paid for?

Gold is up over 1% overnight. Maybe there's a direct connection, maybe not. But when I went to bed, gold was barely up over the New York close.

Absent a policy change such as Volckerism breaking the back of the inflationary burst of the 1970s, multi-year bull markets tend to be bodies in motion that stay in motion in the same direction until they fall of their own weight of overvaluation. Unless one is an auric nihilist who truly thinks that gold is a barbarous relic, then there is no relative overvaluation of gold compared to other financial assets.

A couple of months ago, EBR questioned whether gold had gotten too popular. The price then soared, only to correct to about the level it was at when that post was written.

The economy simply fell into such a deep hole that assuming that the depression is technically over (about which I am uncertain) and does not double-dip in 2010, all sorts of fiscal strains are evident that will at least raise enough fears of money-printing and general price inflation (which I do not believe is in the cards for at least most if not all of 2010) to keep new buyers of gold interested and buying.

Let us wish 2010 well.

Happy New Year to all. Panty-bombers and their ilk excepted.

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