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States Will Soon Have To Start Paying Interest on Their Massive Unemployment Borrowing

Many states have had to borrow billions from the federal government to maintain unemployment insurance payments. But the interest-free grace period on those loans that came with the stimulus bill is about to run out.

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Sometimes it's time to pay the piper. And sometimes that piper is the federal government. And sometimes the piper wants more than $1 billion. Soon.

Because of the high jobless rate and past fiscal irresponsibility, 30 states have collectively had to borrow more than $40 billion from the federal government just to keep unemployment insurance checks in the mail. A provision in the stimulus bill made those loans interest-free for an extended grace period.

But no more. Efforts to include an extension of the grace period in Obama's tax cut extension enacted at the end of last year failed, and the first batch of 14 states will have to start paying interest before the end of this year. Given that state budgets need to be hammered out in advance, that means state legislatures will soon face tough choices as they come back in session.

The amounts due range from California and Michigan, which each face payments of more than $300 million dollars, to Kansas, which will owe about $6 million. (Fun fact: That's $2 for every Kansan.) And because of federal rules, states can't use unemployment insurance taxes to make interest payments, which means cash-strapped states will have to take that money from their general budgets, so there will be less money for roads, schools and other priorities.

Because of a historical compromise, each state operates its own unemployment insurance fund with wide latitude to set tax rates and benefits. While some states were careful to save up and build a cushion of reserves in good years, others got themselves into this mess by maintaining dangerously low levels of reserves for years before the Great Recession hit. (How is your state doing? Check out our Unemployment Insurance Tracker.)

The bill is coming due at a particularly bad time for state legislatures, which already face an $82 billion shortfall for 2012, said Arturo Perez, a fiscal analyst for the National Conference of State Legislatures.

That budget crunch is the largest and deepest fiscal crisis states have faced since the end of the great depression, Perez said.

To make matters worse, most states with trust funds in the red are still bleeding--borrowing more from the federal government to pay out benefits even as they are hit with interest payments.

California is borrowing millions of dollars a day, said Loree Levy, a spokesperson for California's workforce agency. Other states have passed unemployment insurance tax increases, straining employers at the worst possible time, but they were not enough to get their funds back in the black.

Overall, state legislators are at something of a loss to deal with the problem, Perez said.

Some creative solutions are on the table. Texas, which still has reasonably good credit, plans to sell bonds. California, which at this point would probably not be approved for a Sears card, will borrow money from a creditor that can't say no: Gov. Jerry Brown's plan would dip into the state's disability pension fund.

The facts are obvious.

ProPublica would help enormously by reporting what the federal and state governments plan to do about this.

There is no way this can continue. But it continues.

What will it take to bring all this to a stop?

A survey of each state is informative.

Does the present administration intend to ‘bail’ the states, as it did Citi, Merrill, B of A, Wachovia, Goldman, Bear, OR is the intent to let the whole mess go as Lehman went?

The muni market matters. If the federal government underwrites the states, a change in law may be required.

We have a federal system for a reason.

So the Fed/Treasury have the full discretion of the US government to be provided zero interest loans and trillions of direct taxpayer subsidy for wallstreet/GSE/US banks for 3 years now and the States have been given no discretion to borrow money and require a “grace period” to put off paying interest on the benefits for the willing unemployed.  I guess the US financial industry is the sovereign and the states and the people are treated like Germany after WWII.  Thanks ProPublica.

The Real Deal is coming—-SOON—-you heard it here again—-FIRST—no one telling Americans the truth—welfare ended with Clinton and Repubican Congress

LOL
In Socrates time, all men over 18 had to front up.
They were expected to be able to speak at a forum, make a case, which would require sense or be shouted down.
Those boys who did not NOT front up were considered “idiots”
So, what can one expect from a world of idiots, more especially from those Micheal Moore called, “Stupid white men”
The Fed is privately owned. It has been given the greatest power on earth, which is to create credit. It is a sovereign power given up by us and handed over to private interests. Who are they?? that can manipulate the global financial world.!
I think if we know who they are, we will find the conspirators who demolished Building Seven and maybe the motivators of the Tonkin Bay incident.

Comment 2 (Stan) is exactly the same thought I had as I read this—about banks versus states.

Despite all the false happy-talk from Washington about the recession being over, these data show that the recession really exists and is going to get much, much worse.

For one hundred years the Goldman Sachs ot Wall Street fame and fortune and their ilk were able to rape this country first of natural resources,  then of labor. There is nothing left to steal now, the natural resouces are all used up and they have Chinese people willing to work for less than one dollar per hour to produce goods saleable for 10 times their cost to produce and market.

This class of people will continue to live in this country until it becomes unbearable to do so i.e. lanterns, pitchforks, or real taxation, then they will move to whereever they are able to operate unabated.

Hoepfully that will be the moon but probably South America.

To accomplish what they accomplished they needed to control the poltical system. At first it was fairly easy. It became difficult during the late 1960’s and 1970’s but with the creation of the 24 hour media and the paid-off friends and accomplises within the media and the elected politic, and the continual dumming down the general public who believe anything seen on TV,  made it easier once again. To wit: the last general election of 2010.

All the shouting just annoys me.  This is what a country controlled by kleptomaniacs looks like.  Many, many countries around the world have had to go through this, usually due to some “friends” of US imperial interests being supported by dastardly crimes against its people to keep the kleptocrats in power in spite of an enraged populace.  Tunisia has just had to pay a butchers bill, hundreds, probably many more, were killed and mutilated by the security forces supporting the kleptocrats who’s big suit was being ‘a friend of America.”  What goes around comes around.  Now it is our turn to be driven into destitution by a kleptocratic elite.

Man and woman up America!  Stop whining now that it is our turn to get screwed by the folks that have been screwing the rest of the world and keeping us happy and ignorant with a few crumbs.

The answer for any victim of an elaborate confidence game is the same.  If they don’t want to continue being similarly screwed they will have to give up their stupid thinking that made them vulnerable to start with. 

Shut up with the whining and start doing something grown up and smart about the problem.  Public riots seem in order as well as rolling general strikes, just as people, like in Tunisia, have used to free themselves from a predatory elite.

As a member of the “Great State of Texas” I would advise all you who appear so eager to loan money to the States to think that through a little harder.
Texas has a 27 billion dollar hole in our budget altogether.  The last two years we only made it through due to the largess of the Federal government.  All the while our governor “Good Hair Perry” as Molly Ivins called him, bad mouthed the Feds for it and demanded they stop it.  He and the Republican dominated legislature have vowed “no new taxes” NO MATTER WHAT!!!
So to bail this bunch out some more is folly.  They have to and must fail miserably.  The booboosie may not catch on even if we do fail, but to bail this out any further while these fools continue to run around mouthing off and running the State into the ground is a VERY bad idea.

I could go on an on about the underlying causes…how the right’s ability to demand spending on themselves and their goals even as they contracted income tax revenue…even as they eliminated the tax base with inequitable free trade…even as they diverted wealth into the non-tax-paying financial sector…

I could go on and on about how the right’s endless victories made this all inevitable.

Suffice it to say that Grover Norquist and his ilk approach victory…the day when government across the width and breadth of the United States of America becomes non-functional…drowned in a bathtub built of “conservative” greed and filled with “conservative” lies.

For an entity without government is anarchy…is Afghanistan.

America - the nation - has never had as insidious, as focused, as malignant, as successful an enemy as our right, whether they call themselves “conservatives”, “Republicans”, or “Tea Party”.

lolll…and they would have you believe that they are patriots, when everything they do has the singular goal of destroying the United States of America as a functioning nation.

What happened with “flood-up”/“trickle-down” economics?

Did the reduction in taxes cause the economy to grow because of wealth trickling down from the few to the many?

Or did the ability to keep more cause the few to divert ever more out of our economy and to themselves?

The great lie behind “flood-up”/“trickle-down” economics was a quiet one…an insinuation that wealth would “naturally” flow down to the many.  It was a lie of omission…

The few “sorta kinda” forgot to mention the fact that they were wealthy because they were the owner/operators of Corporate America…they were “the boss”; they were the only people who determined wages and areas of investment…particularly once their war upon “unions” had come to fruition.

The few whose greed the “conservatives”...the “right”...so ably represented were who determined what “trickled down”, and sans any tax-centric reason to permit wealth to trickle down, they could - and would - choke the American people…the nation…to death.

I.e., the thinking behind “flood-up”/“trickle-down” was every bit as intelligent as putting a crack addict in charge of the family paycheck, for our few are every bit as addicted to wealth.  To make it even worse, not just a few of our few are sadistic enough to find self-affirmation in the suffering of the many that arises from the many lacking what the few have in abundance.

lolll…oh, how I despise “the right”...for they can only be either as dumb as dirt or every bit as sadistic as too many of our few.

One, or the other.

Were I able to edit a comment, I’d change a sentence to include something that I take for granted but which may not be obvious to one and all; to whit:

‘...particularly once their war upon “unions” had come to fruition with the implementation of deliberately inequitable free trade.’

In case you have forgotten non-union Wal*Mart’s boy Bill Clinton.

Just say NO!
Default on the loan.
Its simple and easy, as advertised, Just Do IT!
Iceland did it. The world did not stop for them.
lol
The FED created all that credit from absolutely nothing…....it cost them only the piece of paper and ink to make a statement, loan document. Not a dime more, no more then a ledger entry.

All deposits are a liability and can not legally be loaned.
Fractionlization allows creation of credit x 9 ( safe banking practice, but they can push it further)
The whole system is held up by “FAITH”
Can you believe it, your little individual piece of faith multiplied by 300m other souls holds the whole criminal edifice up.
With all your personnel debt you are not going to “make a little run down to the bank though”,are you?
I think the word is “COMPROMISED’

So, the WFC was not a run on the banks by all the little souls, just a little Consolidation amongst the elephants.
and when they decide to RUT, the little people get squashed.

Nothing will change!

Hey, how about that, oil prices are going up again, wow, that little tax on every human soul on the planet. Yes another flood of clean laundered cash into the banking “system”

Do you think congress might get a clue, and maybe say, hey, this time around lets create some credit for energy self sufficiency, preferably alternative, and maybe create some jobs, strengthen the dollar and regain some respect from the rest of the world.
or is it going to be more of the same…..starting with some nice bonuses for xmas, and now lets see what the new year brings us.

Quote from:
Its time they new! C. Barclay Smith 1956
Australia

* Do you know that no (trading)bank lends money deposited with it?
*Do you know that when a bank lends money it CREATES it out of nothing?
*Do you know that bank loans are merely pen and ink entries in the credit columns in a banks ledger? They have no other existence.
* Do you know that practically all the money in the community comes into circulation as a debt to the banks?
*Do you know that money loaned by a government bank is just as much a debt to the people as if it were loaned from a private bank?
*do you know that fixed deposits are a plausible screen to hide the creation of credit?
* Did it ever occur to you that banks enjoy this unique facility of creating credit and putting the nation progressively into debt-bondage because they create FINANCIAL credit against the REAL credit created by the people?
* did it ever occur to you that the banks have increased their assets to the vast total $1,700 million in the last 34 years by monetizing the wealth of the community and charging it up to them as an interest- bearing debt?
*Do you know that during the last 45 years the public debt of commonwealth and states has increased from $258 million in 1910 to $ 3,750 million in 1955 - an increase of 1,353 %
*Do you realize that this debt is largely owned by the banks? - if not directly, then as security for loans.
*Are you aware that Commonwealth and State taxationwhich has arisen out of this system of debt-finance has increased from $4/14/4 per head in 1914 to $123 per head today(June 1956)? - an increase in taxation of over 2,360% in 42 years!
*Do you realize that every time a Government borrows money for a public work the people are debited with the liability ( in perpetuity) but are never credited with the value of the asset?
*Do you know that every repayment of a bank loan cancels the amount of the loan out of existence?
* Do you know that Treasury Bills are Government I.O.U’s - national pawn tickets for pledging the assets of Australia to the Banks for the loan of OUR OWN financial credit?
*Do you know that banks pay their salaries, purchase bank sites, build premises and acquire assets at no real cost whatever to themselves - by the simple process of honouring their own cheques?

Quote from:
Its time they new! C. Barclay Smith 1956
Australia

Banks go to great pains to perpetuate the fiction that they are merely” the custodians of their customers depoists” - that they lend these depoists, and that their profit consists of the differnece in the rate interest which they pay to deposistors and the interest they receive fromn borrowers.
Such and idea is quite wrong, and it is the popular acceptance of this major monetery fallacy which gives rise to most of the false notions upon the subject of money.
The facts about money are as follows: -
1. Banks do not lend money deposited with them
2. Every bank loan or overdraft is a creation of entirely new money ( credit), and is a clear addition to the amount of money in the community
3. No depositors money is used when a bank lends money.
4. Practically all the money in the community begins its life as an interest-bearing debt to the banks.

Quote from:
Its time they new! C. Barclay Smith 1956
Australia

*The Technique of a Bank Loan*

All the bank does in lending anybody , say $1,000.00, is to open an account in the borrowers name - if he hasn’t already got an account - and write LIMIT: $1,000.00 across the the top of the ledger. The borrower in now free to operate on this account to the limit indicated.
The banks “loan” has automatically created a deposit of $1,000.00 in the banks books which can be drawn upon by the borrower, and this bank loan is entirely new money.
Thus bank loans create deposits, and not the deposit the loans. It is obviously impossible, indeed illegal, for a bank to lend money deposited with it, as a bank’s deposits are its liabilities and it can’t lend its liabilities.

Quote from:
Its time they new! C. Barclay Smith 1956
Australia

*There is only One Restraint on Lending*

The July, 1938, issue of “Branch Banking”, an English Bankers Journal, stated:-

“There is no more unprofitable subject under the sun than to argue any banking or credit points, since there are enough substantial quotations in existence to prove to the initiated that banks do create credit without restraint.”

There is just one restraint, ” Sound banking practice”, limits the creation of credit to nine or ten times the amount of cash or legal tender which a bank holds.

If the problem is banks lending at interest from non-existent “fractional reserve” funds, then why doesn’t North Dakota have the same problems as the rest of the country.  They do that too.  Exactly that.

Oh yes!  The people of North Dakota, in all their democratic weakness, own the bank.
http://www.banknd.nd.gov/about_BND/

So maybe it is not banking that is the problem.  Maybe it is who owns the banks.

Ian,  Righto. I’m afraid ALL our illustrious govt. regulators, from oil and gas to food and medicine have taken a page from the bankers play book.  The pretense looks good on paper and plays well to an ignorant public, but has no substance whatsoever. Pretend regulation is NO REGULATION. Too bad the pretend money isn’t the ONLY money available to the upper few and their lackies.

All state UI laws provide for automatic increases in the taxes employers pay based on the “reserve ratio” of a State’s UI fund (fund balance divided by total wages subject to UI taxes).  The trouble in most states is the during the last 30 years the reserve ratios to trigger the tax increase needee to keep the funds solvent were cut drastically.  This gave employers short term tax cuts for years, but now pushes them into the very highest tax rates.  The old counter-cyclical scheme of building up reserves in good times to release benefits to stimulate recovery in the bad was replaced by more of a “pay as you go” system that increases charges when they are hardest to pay, as you said.  All of this is the fiscal irresponsibility you indicate, but it benefited employers for years.
What you seem to miss is that the interest on the loans and the replenishing of the UI fund deficits is paid by the employers through raised UI taxes, which is seperate from a state’s general fund.  When conservatives and employer groups are therefore pushing is UI benefit cuts, more stringent IU eligibilty, etc. to make laid off workers take the hit for the corporate greed that caused the financial crisis and mass layoffs in the first place (compounded by 30 years of reduced employer UI taxes).  No doubt as the interest assessments increase, the Right will push harder for such cuts (see, for example, the New Jersey legislative hearing of March 18, 2010 for the proposals of NJ Gov. Christie and the business groups at http://www.njleg.state.nj.us/legislativepub/pubhear/sla_ala03182010.pdf
http://www.njleg.state.nj.us/legislativepub/pubhear/sla_ala03182010_appendix.pdf)
If Gov. Brown is proposing hitting California’s tempory disability fund (which also covers paid family leave) that is a hell of an outrage, since it is funded almost entirely by taxes on workers, while California UI is the responsibility of employers, who, after all, are the ones who who choose to lay workers off.
The answer is to let the system work by allowing the automatic UI tax indreases to replenish the funds and penalize layoffs.  Further, for when the State UI funds return to positive balances, amend the UI laws to require (as they did up until the last 20 or 30 years) higher UI fund balances to obtain UI tax reductions.

albert kapustar

Jan. 17, 2011, 10:38 a.m.

This is what happens when you follow the republican plan to turn the country over to the corporations.Corporations now pay very little in taxes and city,state and federal governments are drowning in debt as a result.We the people will soon be paying much more in taxes for reduced services so the corporations can keep their free lunches.Thank you conservatives.

Over-leveraging got us all into this mess…De-leveraging will get us out….the problem is that the politicians “bailed” out the elite and allowed them then to continue to crush the prols.
History will dictate our outcomes.

There’s a book out there that i have yet had the pleasure of reading. It makes the claim that there is no more then 6,000 individuals worldwide that make all decisions that count.
In respect of those who actually know, control and wield the power to create credit, I would put the number at no more then 300.
In any event, this elite of elites have been directing world events since the beginning of the banking system.States have been set against State, to preserve balance. ( You always need a debt collector, at this level, that means one nation on another- America has been to strong, bankers need a China to balance)
If one was to analysis the situation in the US, then I think the only hope is what is being presented now.
We have an unwieldy and corrupt democracy that people power may still be able to change.
There is hope in the fact we still, by a thread, have States that maintain some sovereignty.
This now opens up the opportunity for the people to march on their State capitols.
We also only have two senators to move.
We only need the people to march on one capital, have one state buck the Federal Reserve.
THIS PRIVATE CORPORATION AT THE HEART OF THE REPUBLIC

The Central Bankers, having a tsunami of deposits from China and from the flood of cash from oil price hikes, was given this opportunity to create and direct credit at creating jobs by any number of opportunities (alternative energy, crumbling infrastructure, education, health, etc.) but instead decided to appease their favorite son, the military industrial complex by delivering up two wars.
Two wars were not enough to soak up this baby, so all hands to the shovel, mortgages and plastic.
Retailing loved it.
The building industry loved it.
The City especially loved it. Bonuses, for sure! Its hard work shoveling -Currency is currency, and is damned good as green backs down at the store.

This situation that was engineered at the center, let them hold the can. Why should the States pick up the cost of the 10 million unemployed because they have been hoodwinked.
Send the principle and interest bill back to the reserve bank with a polite thanks but no thanks.

Just imagine, 50 ledger entries, one each for each State. A dimes worth of paper, and just as simply canceled out of existence.

Forget about trying to legislate, that road is well corrupted, better let the Federal Reserve deny 10 million Americans unemployment benefits.
Lets see what 10 million unemployed American citizens look like, lets see if Americans are still the land of the brave or just a gas bagging bunch of “idiots”

Its worth a try, it will make good outdoor summer entertainment.
It will be an excellent opportunity to expose a whole generation to some good old “people power”
, lest they forget!


Beheading, not De-leveraging!
( Placard ideas - needs some work)

Lets see what the new Congress will do.
Actions speak louder than words.
The new Congress knows that the next election comes in less than two years.
The American voter is watching them.

lolll…“let’s see what the new Congress will do”.

What can they - the new Republican House - do?  The Republicans started an economic cascade when they poked big holes in our economy’s circulatory system and caused its lifeblood - money - to gush out faster and faster and faster by:

1)  Enforcing our addiction to oil, resulting in tremendous and ever-growing oil payments to OPEC and their brethren in Big Oil

2)  “Flood-up/trickle-down” economics, which both enabled the wealthy to pull more wealth out of circulation and incentivized them to inflict…

3)  Deregulation, which incentivized the financial sector to attack all other sectors in order to force them offshore and divert the wealth that those sectors sent into our economy via paychecks distributed among American workers to those corporations’ owner/operators, who would of course invest their new wealth in Wall Street…the unvarnished truth is Americas CEOs became the whores of Wall Street once they began to be paid in stocks.

“Flood-up/trickle-down” economics further incentivized the financial sector to discard ethics, morality, and any and all respect for the law that might inhibit their diversion of whatever they can grab of America’s wealth (to include working-class America’s 401Ks) to themselves. 

And those attacks were accelerated, if not enabled, by….

4)  Inequitable free trade, which both assaulted the tax base by eliminating taxpayers and added monstrous trade deficits as an arterial wound to the American body economic.

lollll…we are in a cascade, I repeat…America was the strongest nation on the planet, and it took a series of concerted attacks by the wealthy few and their dogs - the Republicans and the “Blue Dogs” (that choice of name truly amused me) among the Democrats - to set the cascade in motion.

And now we have a fifth wound:  A People’s Republic of China which has been armed by the Republicans with America’s manufacturing expertise, America’s technology, and America’s money - and they’re both in it to win it and effectively invincible given that they will not tolerate their wealthy’s greed misdirecting the course of their nation…lollll…a godless country will not accept the ungodly burden that we are afflicted with.

The Republicans betrayed America and the American people to satisfy the whims and the greed of the wealthy few…and now I fear it is too late to halt the cascade, particularly when those wealthy who are so inimical to the American people have the Supreme Court:  Recall that the Supreme Court enabled that few to lie to the many without fear of repercussions and with no restraints whatsoever via Citizens United.

Time is of the essence, and a public told undending lies at and in ever increasing volumes will not know the true enemy that afflicts them…will not know who they have to save themselves from…

Until it is far, far too late.