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New York Governor Warns Of Economic Crisis

Mike "Mish" Shedlock
Jul 30, 2008

The New York Times is reporting Paterson Warns of Economic Crisis.

In a rare, brief televised address, Gov. David A. Paterson announced on Tuesday afternoon that he would call the Legislature into an emergency session on Aug. 19 to address what he called an economic and budget crisis confronting New York State as a result of plummeting revenues and rising costs.

The new governor avoided any mention of new taxes, instead arguing forcefully for austerity. He said he was calling on the Legislature to reduce the size of the state workforce; cut agency spending; reduce property taxes for homeowners; aid New Yorkers with the soaring costs of home energy; and even consider public-private partnerships that would take over state assets.

"Revenues are dropping dramatically," the governor added. At the start of May, the state budget office projected a cumulative deficit of $21.5 billion over the next three years. Now, just two months later, that estimate has risen to $26.2 billion - "a staggering 22 percent increase in less than 90 days."

Mr. Paterson offered another example of the rapid deterioration in the state's finances. In June 2007, he said, the 16 banks that pay the most on their business profits remitted $173 million to the state treasury. "This June, just a month ago, they sent us $5 million - a 97 percent decrease," he said.

He vowed, "We will cut spending. Government will learn to do more with less." He called for help from business and labor leaders and New York's representatives in Washington to support him.

He added, "It is time for New York and other governments to cut up our credit cards. The era of 'buy now and pay later, and later' is over. The faster we address this crisis, the faster and stronger we will emerge from it."

Era of 'buy now and pay later, and later' is over

New York is the second state in five days to declare a fiscal emergency. See Schwarzenegger Announced Intention To Slash State Workers' Pay Till Budget Passes for more on the crisis in California.

The most stunning thing about Paterson's announcement is how rational it is. He is not begging Washington for handouts, asking for higher taxes, or praying for miracles.

This is pretty stunning too: In June 2007, the 16 banks that pay the most on their business profits remitted $173 million to the state treasury. "This June, just a month ago, they sent us $5 million - a 97 percent decrease."

Unlike Schwarzenegger who has for years resorted to floating bond or proposing various lottery schemes to "fix" the budget, Paterson has the correct solution.

Of course Schwarzenegger has at times vowed to "cut up the credit cards" but in the end has delivered nothing but promises and schemes of floating $500 billion in bonds to "rebuild California the way it needs to be rebuilt".

Can Paterson Deliver?

I hope Patterson can, but the state legislature is likely to resist all the way.

The Right Mindset

  • Cutting spending
  • Learning to do with less
  • Austerity
  • Reduce the size of the government workforce
  • Reduce property taxes

Patterson had the courage to say exactly what I asked Senator Obama to say in Open Letter To Obama. However, saying these things is one thing, and doing them is another.

Regardless, of whether or not all of those things happen, some forced austerity is all but assured. The same goes for California as well.

And the word that describes the process best is the one word nearly everyone is in denial over: deflation.

Jul 29, 2008
Mike Shedlock / Mish
email: Mish

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