What's making this decline and bout of selling and fear so serious ? IMO, the threats and risks are real and will become evident in other areas of the world as well. The threats don't exist soley in other countries, but also here at home.  I believe that cities, towns , and states will face the same issues.

 

As budget deficits grow out of control and the economies continue to contract - it will become impossible to service the debt.  The government coffers are not taking in sufficient revenues to cover the debt service or to pay down the existing debt.  Governments will no longer be able to create new stimulus projects or to pay existing employees for the work that they do.

Governments are being forced to decide whether to cut public services, payroll or to stop funding stimulus projects.  The difficulty is that the Global economy is already on life support - therefore a decision to stop "stimulus" will leave an already weakened economy to go it on it's own.  Not a great option but an option.

The option to cut services is one that I see as likely.  Service cuts not necessarily result in cuts in payroll.    The service reductions will not raise enough revenue to solve the problems.  Residents will riot when the service cuts become too great.  The riots risk anarchy in the streets.

The final option is the option to cut payroll or shrink the size of the government.  Not a likely option, but a great solution.  If the service cuts are too severe and the public  riots, then the public will see to it that the size of government is shrunken...whether by peaceful means or otherwise.

David Spurr
Displaced EMA

David has worked in the Financial Service field for over 20 years. He loves watching and trading the markets.  He is still trying to learn to become a better trader.

Copyright © 2008 Divid Spurr

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