Monday, February 21, 2011

Did Lincoln in the 1850’s pave the way for Wisconsin today?

I believe we may be at a major inflection point that is so important that the outcome could go down in American history as more important than World War II. The newly elected governor of the State of Wisconsin took his election mandate to do something about the out of control budget in his state. The current projection is that unless something is done the state will have about a $150 million deficit this year and then ballooning to over $3 billion next year.
 
He wants to cut entitlements including retirement benefits and health-care for all public employees in the state and reduce retirement benefits for those former employees already in retirement, among other things.  In order to try to prevent this from happening the Democrats in the state legislature, as they say “left the building” leaving the remaining Republicans without a quorum.
 
When Lincoln was elected along with 8 other friends to the Illinois State Legislature they were called the “Long 9.” They got this nickname for the fact that all of them were over 6 feet tall. The house meeting room was on the first floor of the building and if they didn’t like what was going on they just jumped out of the widow and there was no longer a quorum.
 
The state Senators in Wisconsin didn’t jump out of the window but they did leave the building so there was no longer a quorum to deal with the budget issue. If you have seen the stories in the paper or on TV you see state employees in the rotunda protesting the cuts in benefits and the collective bargaining process. If the elected officials in Wisconsin face down the problem in their state I believe the effect will be like falling domino's across the country. Elected officials in other states which have budget problems, at least 43, will have to pay attention. Should the officials in Wisconsin fail to act then I would suspect that elected officials in other states will “Chicken Out” and not deal with the problems of not having the money to pay for the benefits.
 
Lincoln’s home state of Illinois has a serious budget problem and they increased income taxes 65%, raised taxes on corporations and now they say that less than 30 days after increasing tax and not cutting budgets they will have a $15 billion deficit this year. Now what? If the states can’t get their houses in order how can the US Congress get our Federal government in order?
 
I have written to you in the past that I’m very concerned about the municipal bond market. If Wisconsin can’t deal with the problem then why would the other 43 states want to try to deal with it. If Wisconsin walks away then our economy and both the bond and stocks markets are in serious, very serious, trouble.
 
I understand that many of the employees are saying, “But you promised…,” well GM made a promise to their employees and so did Chrysler and many other companies that had pension plans. They just made bad assumptions. The promise was changed to reflect the reality of what is going on today. When you borrow money to buy a house you sign a contract that you promise to pay the loan back. But, if you lose your job you can’t keep the promise because you have no income. The states just don’t have the money and they will find it more and more difficult to borrow money to pay today’s expenses. Very soon we will find out whether we will be acting responsibly or acting like the Wisconsin Senators who left the building or Lincoln and the “Long 9” who jumped out of the windows to avoid the problems.
 
I do not think the financial press is spending enough time telling Americans just how serious this problem is and what it can mean to all of us. In America, change has to start at home and as we work to get our households in financial order we move up the line to our school boards, our cities, our states and finally the federal government.
 
Let us hope that the leaders in Wisconsin make the right decision as it has the potential to affect all of us.
 
Dan Perkins

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