BILL CRAWFORD: Budget cuts reach critical turning point?

By Bill Crawford

Twist and twirl around the turning points. How do all those ballerinas keep from bumping into each other?
A number of critical turning points occurred last month. But, they’re likely to bump into each other with consequences for Mississippi.
Let’s get all our twirlers on stage.
n Mississippi tax collections reached a turning point in March. For the first time in 18 months, revenue came in slightly higher than projected. After hacking $500 million from this year’s budget, the Governor gets a breather.
n Social Security reached a critical turning point…six years earlier than expected. The Congressional Budget Office announced in March that Social Security will pay out more in benefits than it receives in payroll taxes this year. This was not expected to occur until 2016. Government actuary Stephen C. Goss said payments have risen more than expected during the downturn as jobs disappeared and people applied for benefits sooner than they had planned. Also, the program’s revenue fell sharply because there are fewer paychecks to tax.
n Interest rates may have reached a critical turning point. Financial experts point to poor U.S. Treasury bond auctions held in late March. One analyst called it “the beginning of the end” of low rates. Yields on 10-year Treasury note are expected to move toward the historical average of 7.31 percent from the current 3.90 percent. (Also on March 31 the FED ended its $1.25 trillion mortgage support program, putting further pressure on mortgage interest rates.)
n Unemployment began to turn in March. The Labor Department said last Friday that employers added 162,000 jobs in March.
Here’s how these bump into each other.
The Social Security dilemma and interest rate increases are negatives for the economy. Social Security shortfalls increase already sky high federal borrowings, which press interest rates higher. Higher costs to finance the national debt will also have to be borrowed, potentially putting in place a vicious cycle of rising rates. Rising interest rates will bump mortgage rates higher. Higher rates for home loans may stall the recovery in the housing market.
The revenue turn in Mississippi and the national unemployment turn are positives for the economy. They indicate job growth and economic activity are starting to pick-up both locally and nationally.
When the positives and negatives bump into each other – and they will – which will prevail?
If the negatives prevail, a double-dip recession becomes likely. If the positive prevails, a period of economic expansion will occur.
With huge amounts of temporary federal recovery money supporting Mississippi’s budget, the governor and Legislature need the positive forces to win out. Otherwise, terrible cuts will come in 2012.
Round and round she goes…stopping where?

Bill Crawford is a former legislator from Meridian. Contact him at 1124 Windmill Drive, Meridian, MS 39305, or crawfolk@gmail.com.