California will hit the wall financially this month, which will send a ripple effect across the U.S. economy and over the next two years many more states will follow suit as the federal stimulus money, which has been keeping states alive in the short term, ends in 2011.
That’s the dire prediction David Bronner, CEO of the Retirement Systems of Alabama, gave in a speech to a Rotary Club in west Alabama this past week. While I have sometimes been at odds with Dr. Bronner over matters of etiquette and the historical consequences of his construction projects in the Capital City, I have never questioned his financial expertise. After all, he manages one of the top-50 investment funds in the nation.
Bronner’s comments were reinforced this week by an admission from Vice President Joe Biden. “The truth is, there was a misreading of just how bad an economy we inherited,” said Biden, who is leading the administration’s effort to implement its $787 billion economic stimulus plan.
So when Goodloe Sutton, the owner and publisher of the Democrat-Reporter
in Linden emailed me a summary of Bronner’s remarks to the Rotarians, I felt they were important enough to share with all of you so most of the following words are paraphrased or are those of Bronner.
When will Alabama likewise hit the wall? According to Bronner the date is February of 2011, mainly because we are in better shape than the rest. And it is possible, he says, that we might actually dodge the bullet, but he really doesn’t think things will improve by then enough to avoid a crisis. And when it happens, he says, “it will be the largest economic crisis in the history of the State of Alabama.”
He says Alabama will experience such significant shortfalls by 2011 that taxes, most likely property taxes, will have to rise substantially to avoid collapse of government services and that all states will face a similar fate.
Some governors are attempting to prepare for the impending crises. For example, the governor of Ohio is proposing that slot machines be installed at the state’s race tracks to help raise revenue for the state. At the same time our own Gov. Bob Riley is trying to shut down legal bingo operations in the state that could be taxed for huge revenue to help Alabama withstand the enormous crisis Bronner is predicting. It is time, I believe, that questions start being sent to Riley about what he is doing to prepare Alabama for the impending serious recession. Will it be property taxes or taxes on gambling, Governor?
More Bronner predictions
•Within four to five months the commercial real estate market nationally will begin to collapse as stores, malls, shopping strips, and industrial plants suffer enough closures and therefore loss of rental revenue to make their mortgages.
•Unless oil stays above $70 a barrel, Russian and Mexican economies will begin to unravel. The only other big revenue stream for Mexico is illegal drugs sold in the U. S.
•Inflation won’t arrive for three to five years as the economy improves and people start buying things again.
•China must start selling its products to its own people and paying their workers enough to buy the products. This would increase the cost of their products, reducing exports, and enabling other countries to compete with them. They will also lose interest in having more U. S. dollars.
•The greatest threat to the U. S. economy is one of the following events: A nuclear incident with North Korea, a plague, an Israeli attack on Iran – the greatest risk of this happening is from now until the world economy gets back on its feet…in three to five years.
A patient in the emergency room
Bronner describes the U. S. economy as like a patient in the emergency room having a heart attack instead of what most folks think…that it is in the hospital for cancer or a chronic disease. He said that without the huge Bush stimulus to bail out Wall Street and the Obama stimulus, now underway, the economy would have already flat-lined…in Great Depression-style heading toward 25 percent unemployment and the Dow hitting at a low of around 2,000.
He said the problem was greater than anyone realized, and he now agrees that the government had to start “shoveling” money at the problem to prevent a true and complete collapse of our economy.