(snip)"Having counted on Washington for money that may not be delivered, at least 30 states will have to close larger-than-anticipated shortfalls in the coming fiscal year unless Congress passes a six-month extension of increased federal spending on Medicaid.
Governors and state lawmakers, already facing some of the toughest budgets since the Great Depression, said the repercussions would extend far beyond health care, forcing them to make deep cuts to education, social services and public safety. "(snip)
(snip)"The Medicaid provision, which would extend assistance first granted in last year’s stimulus package, was considered such a sure bet by many governors and legislative leaders that they prematurely included the money in their budgeting. But under pressure from conservative Democrats to rein in deficit spending, House leaders in late May eliminated $24 billion in aid to states from a tax and jobs bill that was approved and forwarded to the Senate.
The Senate plans to take up the measure this week, and the majority leader, Senator Harry Reid of Nevada, favors restoring the money, said his spokesman, Jim Manley. The House speaker, Nancy Pelosi, signaled last week that her chamber was open to reconsidering the appropriation.
But state and Congressional officials said the evolving politics of a midterm election year meant that the federal aid could no longer be taken for granted. And if it does not arrive, it will leave gaping shortages for states that are already slashing services and raising taxes to balance their recession-racked budgets."(snip)
(snip)"The reimbursement increase was limited to a 27-month period that ends on Dec. 31. Almost as soon as it took effect, governors began fretting about the fiscal precipice they would face when the enhanced payments ended. In February, governors from 42 states and several territories signed a letter to Congressional leaders pleading for a six-month extension.
But with the public alarmed about deficit spending, House leaders found that they could not muster the Democratic votes needed to pass the tax and jobs bill without jettisoning several expensive components. "(snip)
(snip)"Many states do not have contingencies for replacing the federal money. Their options will be limited by the severity of the steps they already have taken, and by federal requirements that they maintain eligibility levels for Medicaid.
“We don’t have a specific list of things we would do if we don’t get the money,” said Erik Kriss, a spokesman for Mr. Paterson’s budget office, “but we are looking for the most part at the cut side of the ledger.” "(snip)
as compared to
(snip)"BERLIN (AP) - Germany was close to finalizing Monday a major package of government savings, which would likely cut social welfare benefits, slash public sector jobs, and raise taxes to tackle the budget deficit.
With the debt crisis undermining the euro, Chancellor Angela Merkel's government is determined to tackle Germany's deficit - which while among the smallest in Europe is still above the official EU limit.
Several other countries - notably Greece, Spain and Portugal - have already embarked on much tougher austerity drives.
Merkel brought together her Cabinet for a two-day meeting at the chancellery that started Sunday to discuss the package. She said as she went into the meeting that Germany can no longer live beyond its means, insisting "we can only spend what we take in."
"Our citizens' greatest concern is that public deficits could grow to become immense," Finance Minister Wolfgang Schaeuble said.
Measures reportedly under consideration include cuts to public-service jobs, a reduction of handouts to new parents and new taxes on power providers.
Germany had a budget deficit of 3.1 percent of gross domestic product last year. It is expected to exceed 5 percent this year, still well above the European Union's 3 percent threshold."(snip)
To put this in perspective, the US budget deficit is already expected to be about 10% of GDP !
The important take-away from this issue is that the upcoming congressional vote on a 'second stimulus' gov't spending package, in the eyes of the world economy, is going to be taking place at a time where all of the major European countries are voting to 'take the pain' of social welfare benefit cuts / gov't employee pay cuts and firings etc. in order to avoid growing their deficits.
If the US congress passes a 'second stimulus' package, which will require that the US gov't must go the the worldwide gov't bond markets to borrow yet more hundreds of billions of additional dollars that it does not have, worldwide investors will then view the US dollar as massively overvalued ... probably leading to rapidly rising US interest rates, rapidly falling US stock and bond markets, rapidly rising US dollar denominated prices for all 'world' commodities i.e. energy, food, raw materials, precious metals etc.
If the US congress does not pass a 'second stimulus' package, US states will then be forced to cut their spending significantly ... which in politically palatable terms will probably mean the firing of cops, teachers, etc. as well as major state tax increases.
Thus the upcoming US congressional vote on a 'second stimulus' package represents a major turning point for the future direction of the US economy. The two likely outcomes are either a double-dip recession followed by a slow but real recovery, or an inflationary stagnation a la the late 70's.
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