The US Government is in stimulus mode…
but can’t pay its welfare bills

Writing at the Reuters site, blogger Felix Warner today notes that Illinois owes Shore Community Services, a non-profit agency in suburban Chicago, some $1.6m for services to the mentally disabled. The agency has had to lay off a dozen staff. Jerry Gulley, the executive director, says his outfit’s line of credit could be exhausted soon. Their bank (surprise, surprise) will not accept the state’s IOUs as security. “That’s how sad it is,” shrugged Gulley. Felix adds:

‘The assumption of many investors is that the federal government would never let a state default. It might allow an isolated case, but if a default looked like the start of a wave, the federal government would surely blink—just as Europe did when confronted by Greece’.

Hmm. I don’t think Brussels so much blinked as put out insouciant press releases, while the elected politicians (and the elected dimension is what ups the blood pressure) ran around like seven or eight headless chicken lickens. And the aftermath is a long way from delivering any reassurance to anyone about the EU carrying on bailing people out until Domesday.

People in every debtor country pauperised by the banks are going to face situations like this more and more. In fact, on a daily basis – until they became used to it….as we all did forty years ago to pictures of people on fire or being executed in the streets and jungles of Vietnam.

For me though, this raises another question mark over Obama’s competence. Here is a guy who is on his way to Toronto telling other G20ers that they need to keep calm about too much austerity – and the Chinese that they need to revalue their currency. Yet he wants Congress to vote a $30billion stimulus Bill when (a) the money supply to small business has never been worse (b) his own Government can’t even pay its bills to support the vulnerable (c) most of his own currency analysts say the Yuan’s undervaluation is exaggerated and (d) despite the biggest deficit in American history, old heads say the Federal Budget is ‘out of control’….and heading for disaster because of Obama’s much-applauded healthcare legislation.

Seems to me that our Barack doesn’t really understand either geopolitics or sovereign finance. Let’s hope I’m wrong.