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White House Admits, US States Need To Be Better Prepared For Fiscal Volatility

“What the Great Recession has shown is that things have fundamentally changed,” The White House warned this week and, as Bloomberg reports, states would have to cut spending or raise revenue by a combined $21 billion in the event of a recession, further exacerbating economic weakness, Moody’s Analytics found in a stress test of state finances. While investors are willingly buying bonds with both hands and feet, The White House warns, states "need to be much more prepared for very volatile fiscal conditions than they had been in the past."

 

Tax revenues still lower for many states...

 

"Now’s the time to sock away cash," warns Moody's Daniel White, as Bloomberg reports, U.S. states, still grappling with the lingering effects of the longest recession since the 1930s, are even more vulnerable to another fiscal shock...

The governments have a little more than half the reserves they’d stashed away before the 18-month recession that ended in June 2009, according to a report last month by Pew Charitable Trusts. New Jersey, Pennsylvania, Illinois and Arkansas have saved the least.

 

Skimpier rainy-day funds have implications for the national economy, which is in its sixth year of expansion. States would have to cut spending or raise revenue by a combined $21 billion in the event of a recession, exacerbating economic weakness, Moody’s Analytics found in a stress test of state finances. Reserves take on added importance for governments balancing obligatory pension and health-care costs with swings in tax collections, said Daniel White, a senior economist at the arm of Moody’s Corp.

 

“What the Great Recession has shown is that things have fundamentally changed in terms of the way that state fiscal conditions are determined,” White said from West Chester, Pennsylvania. “They need to be much more prepared for very volatile fiscal conditions than they had been in the past.”

 

...

 

States were unprepared for the last recession. In 2009, budget gaps totaled $117 billion, about twice the level of reserves, according to Pew, a research group. With more of a cushion, they would’ve cut fewer jobs, White said.

 

...

 

In the next recession, the federal government may not assist states as it did in 2009, with grants for Medicaid and education, White said.

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Of course, at this rate there will never be another recession ever again...

70 Months and Counting pic.twitter.com/NWrHJ0M5CO

— Not Jim Cramer (@Not_Jim_Cramer)