Our State’s Operating Budget is unsustainable. Expenditures have increased and TAPS throughput has decreased. We now need $100+ oil prices to break even. How could this have happened? It is a perfect storm of fiscal irresponsibility, an unfavorable climate towards resource production and monetary inflation from the Federal Government have really got us between a rock and hard place.
We need to find creative solutions to protect our state from the Federal Reserves QE 1,2 and soon to be 3 as well as their Operation Twist and near 0% Fed Funds Rate. For those that don’t know QE or Quantitative Easing is a complicated way of saying “money printing”. Operation Twist is where the Federal Reserve sells 10 year bonds in exchange for 30 year bonds. This is done to keep long term interest rates low so the Federal Government can keep borrowing money at Artificially Depressed Interest Rates.
What it all means is that our foreign creditors (China) have realized that our National Debt (16 trillion and counting) will never be repaid and refuse to buy long term (30 year) bonds. This would normally lead to an increase in the long term interest rate, that is where the “Twist” comes in to play. The reality is we are less than 30 years away from default and bankruptcy as a nation. The only way for us to keep the gravy train running just a little longer is to print money. This works as long as every other central bank in the world also prints money and oil is priced in dollars. However this inflation of the money supply causes a subsequent increase in prices. Our state and local governments (that can’t print money) are faced with an ever increasing cost of the services they provide and a decreased standard of living for our residents. We have a couple of obvious choices:
Cut spending/services and find efficiencies, or
Increase revenues (I hope we do this by increasing resource production instead of inventing new taxes).
The price of our resources in USD terms should rise with inflation giving Alaska a natural buffer but only so long as we produce our resources. This is not a long term solution only our best option right now. We need to make sure our budget reserve and PFD are inflation proofed as well.
These should be every Alaskans’ Top Priority.
