Monday, August 8, 2011

Monday Must Read: US Debt Downgrade Prompts Blame Game; California Headed for Big Budget Cuts

by Robert Gammon
Mon, Aug 8, 2011 at 10:46 AM

Stories you shouldn’t miss:

1. Standard and Poor’s decision to downgrade the country’s credit rating for long-term debt has led to a predictable round of finger-pointing in Washington that could result in yet another downgrade if it continues. S&P cited the inability of Democrats and Republicans to reach compromise on the debt-ceiling deal as a major reason for why the company downgraded the nation’s credit rating. But Democrats and Republicans are already blaming each other for the downgrade, and a grand compromise seems unlikely as the GOP continues to insist that it will not agree to tax increases to help lower the country’s debt.

2. The downgrade, meanwhile, does not appear to be affecting the nation’s economy — at least not in the way economists would expect. Paul Krugman notes in The New York Times that investors have been buying more US debt since the downgrade happened, further driving down the interest rate on treasuries. The downgrade, however, was supposed to have the opposite effect — the driving up of interest rates. The stock market, meanwhile, is down, but Krugman attributes that to continued high unemployment and the general weakness of the economy.

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3. California likely will have to enact huge budget cuts in January because the prediction by Governor Jerry Brown of an economic turnaround this year appears to be inaccurate, Bay Area News Group reports. Brown and Democratic leaders had based the budget they passed in late June on the premise that state tax revenues would jump sharply in the second half of the year as the economy rebounded. But that prediction likely will not come true, thereby forcing the state to make drastic cuts to education and social services.

4. Brown’s two Oakland charter schools, however, don’t have much to worry about in terms of state budget cuts thanks to all of the money the governor has been collecting on their behalf. The Los Angeles Times gives a rundown today on the $2.5 million that the governor has collected in donations this year alone for his arts and military charter schools in Oakland from special interests seeking to influence his office.

5. Brown’s plan to transfer tens of thousands of convicts from state prisons to county jails will fall short of court demands to relieve prison overcrowding, the nonpartisan Legislative Analyst’s Office says, according to the Chron. The LAO, as a result, is suggesting that Brown’s administration request a court delay in relieving prison overcrowding.

6. Cities looking to follow Vallejo’s lead and declare bankruptcy in order to slash public-employee pension costs may want to think twice. Calpensions reports that as Vallejo emerges from bankruptcy, it pension costs have not gone down, and that bankruptcy proceedings cost the city about $10 million in legal bills.

7. And the Chron today analyzes the current myth being pushed by the Tea Party that nearly half of Americans don’t pay taxes. That Big Lie, of course, overlooks the fact that there’s a good reason for why many Americans don’t pay federal income taxes — they’re too poor. The Big Lie also omits the fact that poverty stricken Americans still pay payroll taxes, sales taxes, and other taxes.

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